Wednesday, April 23, 2008

Apple (AAPL) Nice Solid Result

Better than the result, is the "not crazy" reaction like a bunch of rabid coyotes, either up or down in after hours. As expected Mac sales were simply ridiculous and the iPod and iPhone were good enough so people do not cry and sell the stock off 20%. Guidance was set low (AGAIN) but this is the Apple game. Whatever they say for guidance, they beat by 20-25 cents of late. Case in point, I wrote 3 months ago when they gave $0.94 EPS as their guidance

Again, people may obsess over this, but this is the Wall Street game - under promise, over deliver. They say $0.94... which means $1.10 or so in dog years. So the stock will tank. We'll look back in 3 months and see they squashed the $0.94 estimate just like they squashed their $1.42 estimate 3 months ago. But none of that matters now of course as in a nervous market, people will find any excuse to call for End of Days.

And what did they report? $1.16. So much for my $1.10... Yet the stock dropped 30-40% due to this "guidance" last time around (we took a big hit). Again, this shows you, you can be intellectually correct, nail a call, but still get destroyed short term by owning a stock and having the herd run over you.

So now they have guided for $1.00 next quarter - in Apple speak that means $1.22 or so. At least the lemmings are taking it better this time around, since this "guidance" is below analysts estimates of $1.10.

I liked everything about this report except for the gross margin degradation, down from both last quarter's 34.7% and last year's 35.1%% - no specific reason given in the earnings report so we'll have to listen to the conference call to find out. Everything else was quite spectacular for a company of this size. Whatever the spin is today, tomorrow or the next day (or where the stock goes) - this company is becoming the de fact entertainment company (slash) fashion accessory for the next generation. They are 2 steps ahead of everyone else. Period.
  • The Company posted revenue of $7.51 billion and net quarterly profit of $1.05 billion, or $1.16 per diluted share. These results compare to revenue of $5.26 billion and net quarterly profit of $770 million, or $.87 per diluted share, in the year-ago quarter.
  • Gross margin was 32.9 percent, down from 35.1 percent in the year-ago quarter.
  • Apple shipped 2,289,000 Macintosh® computers during the quarter, representing 51 percent unit growth and 54 percent revenue growth over the year-ago quarter (that's just ridiculous, up from 44%/47% respectively last quarter - amazing)
  • The Company sold 10,644,000 iPods during the quarter, representing one percent unit growth and eight percent revenue growth over the year-ago quarter. Quarterly iPhone(TM) sales were 1,703,000.
  • International sales accounted for 44 percent of the quarter's revenue.
Remember, iPod at this point is a cash cow, not a growth driver. It did it's job - reinvent the company and drive a new generation of people to the Mac and make it the "cool company" that people will pay a premium for, for it's products. With the 3G iPhone and lower prices, this is set to move into the mainstream in the next generation...

... and I continue to believe Mac will be taking more and more share from PCs as this generation of preteens, teens, and 20 year old set moves up in age. And yes, there will be stress from the US consumer but things like this and video games will be the last to go.

This is simply one of the few areas in the much overhyped tech area that has real secular growth >15%. Now we wait 3 months and await the same dog and pony show next quarter, as short sighted investors miss the forest for the trees and overreact to every line item in a multi year story. This is the type of stock I don't even go to Yahoo Finance to read any daily news about, except for maybe once a month - I am that confidant of the "long term" (i.e. in this era long term being more than 48 hours) prospects. We'll keep buying this on the inevitable dips; still pricey at 30x this year's estimates but the scarcity value of this type of growth deserves some premium.

Long Apple in fund; no personal position

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