Letter to a 13 year old man about AAPL

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    Posted: 19 January 2011 03:34 AM

    The last 10,000 years has viewed a 13 year old boy, as a man. I wrote a missive tonight to a friend who celebrated his bah mitzvah in April 2010. I have known him, and his parents, since he was an ankle biter. He has become quite the AAPL evangelist, and is always pushing back to me about why I value AAPL so much. He also spends the vast majority of his (disposable income generated from the folks) on AAPL product. Truly an inquisitive young man.

    I sent him an email today asking if he watched the conference call of AAPL, or was aware of their quarterly result announcements. He replied no, and wtf did i mean about a conf call.

    Here is my response to him…

    “In the Business world, any company that reports year over year growth in excess of 10 percent is viewed by wall street as a very viable, and growth oriented company. You father would like nothing more than to see his company grow by 10 percent on a year over year basis, ( referred to as YOY growth in revenues ).

    When these growth companies start maturing, wall street lowers the expectation, and even 5-6 percent YOY is considered good. General Electric falls into this category. It might be viewed as the stalwart large cap growth company in america. General Electric is the 5th largest company in the world when viewed via Market Cap. Market Cap is the stock price multiplied by the amount of shares the company has available to sell. And they have shown growth in 2007 through 2008 of MINUS 4.7 percent. Not quite a stellar accomplishment indeed. It has a market cap of 198 billion as of today. Big bucks.

    Exxon Mobil is the number one market cap company in the world, and today it has a total value of 396 Billion! Yes that is a B. Exxon had a YOY revenue growth of 16.1 percent. This is unheard of for a company this large, and there are very few in the top 50 that have over 10 percent revenue growth YOY. A certain handfull at best. Remember the 10% rule above.

    Here are the values ( market capitalization, market cap ) of the world’s largest companies in a single column.

    Exxon Mobil   XOM   $386.2B
    Apple   AAPL   $315.9B
    Microsoft   MSFT   $244.3B
    Berkshire Hath.  BRKA   $199.7B
    General Electric   GE   $198.7B
    Wal-Mart Stores   WMT   $195.4B
    Google Inc.  GOOG   $197.3B  
    Chevron   CVX   $186.1B
    IBM   IBM   $185.2B  
    Procter & Gamble   PG   $184.4B    
    JPMorgan Chase   JPM   $174.8B
    Johnson&Johnson; JNJ   $171.6B  
    Wells Fargo   WFC   $168.0B
    AT&T   T   $165.7B  
    Oracle   ORCL   $156.4B
    Bank of America   BAC   $151.2B  
    Pfizer   PFE   $146.9B
    Coca-Cola   KO   $146.4B
    Intel Corp.  INTC   $118.8B
    Cisco Systems   CSCO   $117.1B


    So as you can see, Apple is now the second highest market cap in the world, having surpassed Microsoft in early 2010, and Apple was not even in the top 30 one year ago! As a matter of fact they were 71st in 2009. See this link…

    http://money.cnn.com/magazines/fortune/fortune500/2009/full_list/

    So as you can see, Apple went from 71st in the world to number 2 in the world, eclipsed only by Exxon Mobil, in just two years!

    Apple, like all publicly traded companies, announce their quarterly results four times a year. Today they announced their 1st quarter profits, and they reported YOY revenue growth of 70%. Yes you read that right, 70 percent YOY growth! There has never been a company in the history of the world that I know of that has these kind of large revenue dollars growth. Hasn’t happened. Probably wont ever happen again. Who knows.

    Lets drill down a little more, and talk about profitability. Most large market cap companies have earnings growth of 4-5 percent on a YOY basis. Earnings growth is the profit they make on a YOY basis. ( yitron if your hebrew is good ). See this link for an explanation of a companies P/E Ratio, often referred to as their P/E ratio, or price to earnings ratio.

    http://en.wikipedia.org/wiki/Earnings_growth

    Not only did Apple announce a 70 percent revenue growth, but more importantly, they announced a YOY earnings (yitron) growth of 78 % , yes, 78 percent profit growth with 70 percent revenue growth. This has never been done by any company I know. It is unheralded, and almost magical in it’s magnitude. Especially as large as Apple is!

    Please take 20 minutes to listen to this Conference Call from Apple from today, it is most enlightening.

    http://www.apple.com/quicktime/qtv/earningsq111/

    So, what does all this mumbo jumbo mean to (my 13 year old freind’s name)... I am glad you ask.

    Apple has now 161 Million IOS devices it has sold, and most have sold in the last 2 years. Apple sold approximately 33 Million of them in the last quarter! 16 Million iPhones, 7.3 million iPads, and 11 million iPod Touch devices. I predict they will sell, another 30 plus million of the above in the 2nd quarter of their earnings ( which by the way is always their worst quarter ) from Jan 1 through March 30.

    So that means by March of 2011, Apple will have over 200 million devices running IOS! And by the end of calendar year 2011, that number can very well grow to 300 million, or more, probably more.

    If an application developer ( it costs 99 buck a year to be one ) were to create an iFart 2.0 app that was superior to iFart 1.0, and they were to charge 99 cents for each on sold, and lets say they sold one to 10 percent of the available users, that is 20 million dollars in just the existing marketplace as of March 2011.

    (cont’d on part deux, due to lack of character)

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    “the power to crush the other kids”

    http://www.differentdistrict.com/movies/play.php?id=280_0_28_0

         
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    Posted: 19 January 2011 03:40 AM #1

    ( part deux due to character limitations )

    “If an application developer ( it costs 99 buck a year to be one ) were to create an iFart 2.0 app that was superior to iFart 1.0, and they were to charge 99 cents for each on sold, and lets say they sold one to 10 percent of the available users, that is 20 million dollars in just the existing marketplace as of March 2011.

    20 Million in sales is not 20 million in profit. Apple takes a 30 percent cut off the top for credit card costs, hosting on the itunes app store, and marketing. So 20 million time .7 is 14 million is gross revenue. So if the ifart company spent a million dollars to create the app, they made 13 million in gross profit! (yitron)

    2 words of wisdom from me to you…

    1st, align yourself with smart people, and learn what they have to offer to you, and your goals.

    2nd, every chance you have between now and when you graduate high school/college,  take as many business/business management related classes as you can. The world is full of followers, crying out for people to lead them, and manage them. It is why religion is so popular.

    Lead, Follow, or get the hell out of the way. It is my motto. My mantra. I think you have what it takes to be yours as well. It’s nor personal, it’s business!

    Sorry for the long missive, but you did ask.

    If I can be any more insightful or helpful to you, I am here.”

    fin…

    I love some of these kids these days, and wish I had some of these insights when I was one.

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    “the power to crush the other kids”

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    Posted: 19 January 2011 03:45 AM #2

    And yes, the avatar needs to take a chill pill…

    You extoll the value of AAPL for 25 years, and that is what you get. It has not been easy.

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    “the power to crush the other kids”

    http://www.differentdistrict.com/movies/play.php?id=280_0_28_0

         
  • Posted: 19 January 2011 04:03 AM #3

    wow, thanks for that, thats inspiring. 

    i know what u mean about being a mac evangelist for 25 years,

    and it is remarkable what a fantastic job aapl is doing, and i am glad many have gone along for the financial ride.

    im fully out now not trusting the market, looking for a pull back.

    “if i had only invested in apple stock each time i had invested in apple hw over the past 25 years”

         
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    Posted: 19 January 2011 04:06 AM #4

    And the last of the rant now ends, though it was not a rant, just a missive with a mission.

    AAPL is en fuego. Not missing a cylinder, and the machine itself is very well oiled and fine tuned.

    Management knows where they are, and where they are going. Today, Tomorrow, and well into the distant future. 16 quarters in a row of 50% growth from non-believers. ( folks that go to an Apple store and buy a mac/iphone/ipad for the first time ). Appreciate that fact?, no, I say shout it from the mountain. 50 Percent new folk are coming on board on a YOY basis. 50%, criminy, I cannot do the math forward, as it is too large a number.

    God Bless SJ, may he be healthy, and enjoy his family. He deserves it.

    Thanks for leaving us Tim Cook, and his crew, Steve.

    2 pennies

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    “the power to crush the other kids”

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  • Posted: 19 January 2011 04:21 AM #5

    Bravo MacManus.  Bravo!

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    I don’t mind being wrong…,I just hate being wrong so FAST!

         
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    Posted: 19 January 2011 05:01 AM #6

    Thanks BillH,

    I am a frequent flier, I live and breathe via this board since it’s inception. Daily. I am in the field with AAPL daily, and most evenings i come home and bleed seven colors. I have done much less bleeding in the last 5 years, and almost none in the last two. Today, you can cut me, and my wounds heal almost magically. I have become whole with the AAPL world, and I really like what I see going forward. The best thing is, I strove, and now I get the rewards from my strife.

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    “the power to crush the other kids”

    http://www.differentdistrict.com/movies/play.php?id=280_0_28_0

         
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    Posted: 19 January 2011 09:32 AM #7

    MacManus - 19 January 2011 07:34 AM

    Here are the values ( market capitalization, market cap ) of the world’s largest companies in a single column.

    Exxon Mobil   XOM   $386.2B
    Apple   AAPL   $315.9B
    Microsoft   MSFT   $244.3B

    This is a list of the largest US corporation, not the world’s biggest companies by market capitalization. A list from 2010q4 for global companies would have included PetroChina, BHP Billiton, Industrial and Commercial Bank of China, Petrobras, China Construction Bank, Royal Dutch Shell and Nestl?.

    I also would encourage your young friend to learn about economics more than management and more than anything, critical thinking. And let us know what he replies.

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    Tightwad.