Apple’s Growth Scorecard

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    Posted: 19 May 2010 10:12 AM

    Apple’s growth and its disconnect with valuation has been a common theme on this board. For another look at this conundrum I posted a table of Apple’s year on year sales growth by product line and its top and bottom lines on my blog:  http://blog.asymco.com/2010/05/19/apples-growth-scorecard/

    What does this scorecard say about the previous 24 months of economic crises?

    - Earnings never grew slower than 30% for any quarter except for one quarter when the comp was ridiculously high at 155% (on the back of iPhone 3G launch).
    - Throughout the recession Apple grew sales.
    - The worst growth performance was on peripherals which is Apple?s smallest business
    - The fastest growth was the iPhone, now Apple?s largest business.
    - Along with the iPhone, the iTunes store grew sales consistently throughout the previous 24 months.
    - Growth has been positive across all lines for the past two quarters and has been accelerating.

    My estimate for the current (June) quarter is that Net Sales will grow by 47% y/y and Earnings will grow by 60%.

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  • Posted: 19 May 2010 11:03 AM #1

    Long time holder of the stock and observer of the board, but first time post.

    I think that some of wall street and most of us have already realize that growth in earnings will be significant for Q3 and Q4. My question is what kind of growth rate do you see for 2011? I think the street may think that growing on top of this years great numbers will be difficult.

    Lets say apple earns 15.00 for 2010. If the street thinks it can only grow single digits for 2011, in a bad market it might put the pe in the teens. A 15 PE on 15 earnings puts the stock at 225 in sept as opposed to 20 times trailing earnings putting the stock at 300.

    Thoughts?

         
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    Posted: 19 May 2010 11:19 AM #2

    My earnings estimate for FY2011 is $17.6/share.  My estimate for FY2010 is $14.6.  That’s a modest 20% growth.  My assumptions are conservative.

    These forecasts imply a current forward P/E of 14.5.

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  • Posted: 19 May 2010 03:31 PM #3

    asymco - 19 May 2010 02:19 PM

    My earnings estimate for FY2011 is $17.6/share.  My estimate for FY2010 is $14.6.  That’s a modest 20% growth.  My assumptions are conservative.

    These forecasts imply a current forward P/E of 14.5.

    Your assumptions are indeed low. Apple’s on track for 50% revenue growth this fiscal year. I already see $17.50 (or more) per share in trailing 12-month earnings following FQ2 2011.

    Apple should reach $15 per share this fiscal year (65% eps growth) and even if the eps growth rate was cut in half (32.5%) you’re already looking at $19.88 per share.

         
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    Posted: 19 May 2010 03:54 PM #4

    DawnTreader - 19 May 2010 06:31 PM
    asymco - 19 May 2010 02:19 PM

    My earnings estimate for FY2011 is $17.6/share.  My estimate for FY2010 is $14.6.  That’s a modest 20% growth.  My assumptions are conservative.

    These forecasts imply a current forward P/E of 14.5.

    Your assumptions are indeed low. Apple’s on track for 50% revenue growth this fiscal year. I already see $17.50 (or more) per share in trailing 12-month earnings following FQ2 2011.

    Apple should reach $15 per share this fiscal year (65% eps growth) and even if the eps growth rate was cut in half (32.5%) you’re already looking at $19.88 per share.

    We don’t disagree on this year.  My forecast of 14.6 for FY2010 would be 61% eps growth.  However my FY2011 is low due to:

    (1) a reduction in the growth of iPhone.  I have it at 50% which is way below the 100% or more that we’ve seen so far. I have a far more aggressive growth thesis based on Apple evolving their distribution and pricing so as to grow share, but I cannot commit that to the model until I see some sign—perhaps we’ll see it in a few weeks.
    (2)  I’m also keeping Mac at 15% growth.
    (3) the iPod at negative 5% or so. 
    (4) I am keeping iPad at 100% growth. 

    I fully recognize these to be low-ball figures, or what might be considered a worst case scenario.  It still suggests dramatic undervaluation of the stock.  In a best case scenario, or even an average case scenario, growth leaps up.

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    Posted: 19 May 2010 04:53 PM #5

    Just curious.  Mac sale increases is due to more consumers buying or iPhone/iPad/iTouch developers buying?

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    Posted: 19 May 2010 05:28 PM #6

    Several tens of thousands of Macs from developers purchased over the past couple of years. 

    Several hundreds of thousands of Macs from switchers every quarter or so.

    The rest of the millions sold come from current Mac families and companies.

         
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    Posted: 19 May 2010 06:56 PM #7

    Tetrachloride - 19 May 2010 08:28 PM

    Several tens of thousands of Macs from developers purchased over the past couple of years. 

    Several hundreds of thousands of Macs from switchers every quarter or so.

    The rest of the millions sold come from current Mac families and companies.

    I dont recall the exact amount but I believe it has been stated for the past two quarters that more than 50% of mac buyers were new to macs. Anyone remember the exact details?

    p.s. been traveling and have not had time to post, though I am trying to keep up with everything.


    edit:
    Clearly that quote I referred to was for their retail stores sales of macs. Here’s the quote from the last earnings call. Not sure how that compares to online buyers or other reseller store purchases.

    Overall mac sales were 2.94 million

    “?Id now like to turn to the Apple Retail Stores. Revenue in the quarter was $1.68 billion compared to $1.38 billion in the year ago quarter, an increase of 22%. Our stores sold 606,000 Macs compared to 438,000 Macs in the year ago quarter, an increase of 38%. About half the Macs sold in our stores during the March quarter were to customers, who?ve never owned a Mac before.”

    and the Jan 2010 earnings call: Overall mac sales were 3.36 million

    “I would now like to turn to the Apple Retail stores. Revenue in the quarter was $1.97 billion compared to $1.75 billion in the year-ago quarter, an increase of 13%. Our stores sold a record 689,000 Macs compared to 515,000 Macs in the year-ago quarter. About half the Macs sold in our stores during the December quarter were to customers who had never owned a Mac before.”

    So if my rough math is right

    9.77% of Q2 2010 mac sales were to new mac owners
    9.70% of Q1 2010 mac sales were to new mac owners

    [ Edited: 19 May 2010 07:12 PM by $Billyall ]      
  • Posted: 19 May 2010 07:39 PM #8

    $Billyall - 19 May 2010 09:56 PM
    Tetrachloride - 19 May 2010 08:28 PM

    Several tens of thousands of Macs from developers purchased over the past couple of years. 

    Several hundreds of thousands of Macs from switchers every quarter or so.

    The rest of the millions sold come from current Mac families and companies.

    I dont recall the exact amount but I believe it has been stated for the past two quarters that more than 50% of mac buyers were new to macs. Anyone remember the exact details?

    I believe the statement pertains to 50% of Mac buyers at Apple retail stores are new to the platform.

         
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    Posted: 19 May 2010 08:14 PM #9

    Yes and my last edit in my post

    “So if my rough math is right

    9.77% of Q2 2010 mac sales were to new mac owners
    9.70% of Q1 2010 mac sales were to new mac owners”

    is not accurate since we dont know how many new mac buyers were not from the Apple retail purchases.
    I should have stated “At a minimum, 9.77% and 9.70% respectively were to new mac buyers.”

    I wouldn’t know how to go about trying to figure out how many new mac buyers come from the other avenues as I dont think we have gotten any other data or comments regarding those numbers.
    I would think it safe to assume that if there are almost 10% in store new to macs, there could be at least 2.5% of the remaining sales new to macs as well.

    I doubt Im being as clear with my thoughts as I could be as I am very sleep deprived at the moment. 8) Either way it’s clear that new buyers are being pulled into making bigger purchases due to the halo from all of the other iProducts.

         
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    Posted: 19 May 2010 09:53 PM #10

    $Billyall - 19 May 2010 11:14 PM

    Yes and my last edit in my post

    “So if my rough math is right

    9.77% of Q2 2010 mac sales were to new mac owners
    9.70% of Q1 2010 mac sales were to new mac owners”

    is not accurate since we dont know how many new mac buyers were not from the Apple retail purchases.
    I should have stated “At a minimum, 9.77% and 9.70% respectively were to new mac buyers.”

    I wouldn’t know how to go about trying to figure out how many new mac buyers come from the other avenues as I dont think we have gotten any other data or comments regarding those numbers.
    I would think it safe to assume that if there are almost 10% in store new to macs, there could be at least 2.5% of the remaining sales new to macs as well.

    I doubt Im being as clear with my thoughts as I could be as I am very sleep deprived at the moment. 8) Either way it’s clear that new buyers are being pulled into making bigger purchases due to the halo from all of the other iProducts.


    Bill I would suspect the percentage is much higher.  The 50% in retail is a good leading indicator.  New buyers are probably attracted to the retail stores so the percentage is probably above the overall market, but I would guess 30-40% of buyers are new to the Mac.  One metric I watch is the PC growth rate vs the Mac growth rate.  The PC business is a indicator of the economy and Apple’s extra growth comes at the expense of the other box makers.  The consumer tech refresh cycle is not as easy to predict as say a business.  When we bought system for my command we refreshed 1/3 of the PCs per year for a 3 year cycle.  From what I’ve seen at the local schools the refresh is much slower more like 4-7 yrs.  Consumers I have no clue but obviously the economy has a definite impact and it is very observable in the figure from NPD

    Apple has maintain their pricing in the face of the competition but to date that has not affect sales compared to the PC market at large.  I personally thought we would see a price drop on the low end Macbook to pull in the next segment of consumer, but Apple maintained their pricing strategy.  Better to maintain the brand then gain share I guess.  Based on my own observations, many folks are dissatisfied with Windows and the folks working on machine with XP are very likely to go with Apple instead of Windows 7.  The economy slowed the transition but it will continue.

         
  • Posted: 20 May 2010 12:50 AM #11

    asymco - 19 May 2010 06:54 PM
    DawnTreader - 19 May 2010 06:31 PM
    asymco - 19 May 2010 02:19 PM

    My earnings estimate for FY2011 is $17.6/share.  My estimate for FY2010 is $14.6.  That’s a modest 20% growth.  My assumptions are conservative.

    These forecasts imply a current forward P/E of 14.5.

    Your assumptions are indeed low. Apple’s on track for 50% revenue growth this fiscal year. I already see $17.50 (or more) per share in trailing 12-month earnings following FQ2 2011.

    Apple should reach $15 per share this fiscal year (65% eps growth) and even if the eps growth rate was cut in half (32.5%) you’re already looking at $19.88 per share.

    We don’t disagree on this year.  My forecast of 14.6 for FY2010 would be 61% eps growth.  However my FY2011 is low due to:

    (1) a reduction in the growth of iPhone.  I have it at 50% which is way below the 100% or more that we’ve seen so far. I have a far more aggressive growth thesis based on Apple evolving their distribution and pricing so as to grow share, but I cannot commit that to the model until I see some sign—perhaps we’ll see it in a few weeks.
    (2)  I’m also keeping Mac at 15% growth.
    (3) the iPod at negative 5% or so. 
    (4) I am keeping iPad at 100% growth. 

    I fully recognize these to be low-ball figures, or what might be considered a worst case scenario.  It still suggests dramatic undervaluation of the stock.  In a best case scenario, or even an average case scenario, growth leaps up.

    Moving from $14.6 per share to $17.6 per share represents only a 20% gain in eps in the fiscal year.
    Mac grow will continue at an impressive pace as education spending rebounds, more retail stores are opened (especially in the EU) and consumer spending gradually returns to normalcy. By the way, I expect the iPad to have a positive halo effect on Mac sales.

    The iPod will continue to see unit sales declines but it’s contribution to overall revenue is lessened with each passing quarter. iPad ASPs will be higher than iPhone ASPs so an iPad sale is equal to or greater than and iPhone sale.

    But don’t forget growth in iTunes-related revenue. In the March quarter the revenue segment including iTunes had net revenue growth of 27% and accounted for $1.327 billion or about 10% of reported revenue. Watch for that revenue segment to gain growth momentum. It should be a factor in estimates.

         
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    Posted: 20 May 2010 04:17 AM #12

    DT:  iTunes does factor into revs somewhat, but will not help earnings (if you accept the vague statements that iTunes “original” and iTunes the “App Store” both operate near break-even).  Of course, the iTunes Store is key to the success of iPhone/iPad/iPod touch.

    [ Edited: 20 May 2010 04:19 AM by Mav ]

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    Posted: 20 May 2010 10:26 AM #13

    pats - 20 May 2010 12:53 AM


    .......Bill I would suspect the percentage is much higher.  .......

    You are probably right, now that I have caught up on some sleep I am thinking a little more clearly now 8)

    I am sure it is closer to the 50% just based on the fact that most mac users dont have the need to upgrade their machines as quickly as PC users. My macs have lasted longer and performed better than any of the few pcs I have ever owned.

         
  • Posted: 20 May 2010 05:10 PM #14

    Mav - 20 May 2010 07:17 AM

    DT:  iTunes does factor into revs somewhat, but will not help earnings (if you accept the vague statements that iTunes “original” and iTunes the “App Store” both operate near break-even).  Of course, the iTunes Store is key to the success of iPhone/iPad/iPod touch.

    For anyone who believes iTunes only breaks even there’s a very nice book of fairy tales I recommend for additional reading.  :wink:

         
  • Posted: 20 May 2010 09:25 PM #15

    asymco - 19 May 2010 06:54 PM

    [...]
    We don’t disagree on this year.  My forecast of 14.6 for FY2010 would be 61% eps growth.  However my FY2011 is low due to:

    (1) a reduction in the growth of iPhone.  I have it at 50% which is way below the 100% or more that we’ve seen so far. I have a far more aggressive growth thesis based on Apple evolving their distribution and pricing so as to grow share, but I cannot commit that to the model until I see some sign—perhaps we’ll see it in a few weeks.
    (2)  I’m also keeping Mac at 15% growth.
    (3) the iPod at negative 5% or so. 
    (4) I am keeping iPad at 100% growth. 

    I fully recognize these to be low-ball figures, or what might be considered a worst case scenario.  It still suggests dramatic undervaluation of the stock.  In a best case scenario, or even an average case scenario, growth leaps up.

    In some other thread I laid out my expectations for these four metrics.  We are very much in concert except for the Mac category where I am using 25%.  And I likewise view them as conservative overall.