Wednesday, July 20, 2011

Apple's 3Q Earnings Report

Apple's earnings released yesterday was certainly impressive by any measure. Consider that, back in 2008, Apple (AAPL) earned $ 4.8 billion during that full year.

An impressive amount by any standard but especially when you consider that five years earlier, in 2003, the company was barely breaking even.

Apple Reports 3rd Quarter 2011 Results: July 19, 2011

In Apple's most recent quarterly earnings release, the company revealed earnings of $ 7.3 billion. So Apple is able to now produce far more earnings in 13 weeks than what it could produce in a full year back in 2008.

Here's a non-tech comparison. Apple's quarterly earnings was also more than the expected annualized 2011 earnings of Pepsi (PEP).

Google's (GOOGmost recent quarterly results was also very impressive but what Apple is doing is hard to believe. It will be interesting to see how this compares to Microsoft (MSFT) when that company reports tomorrow.

Apple now has $ 76 billion of cash and marketable securities on the balance sheet with no debt. One heck of a pile of cash. That's $ 81 in net cash per share. Not that they need the headaches or risks but Apple could capitalize a pretty good size bank with that much capital.

From the latest Apple earnings release:

The Company posted record quarterly revenue of $28.57 billion and record quarterly net profit of $7.31 billion, or $7.79 per diluted share. These results compare to revenue of $15.70 billion and net quarterly profit of $3.25 billion, or $3.51 per diluted share, in the year-ago quarter. Gross margin was 41.7 percent compared to 39.1 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.

The Company sold 20.34 million iPhones in the quarter, representing 142 percent unit growth over the year-ago quarter. Apple sold 9.25 million iPads during the quarter, a 183 percent unit increase over the year-ago quarter. The Company sold 3.95 million Macs during the quarter, a 14 percent unit increase over the year-ago quarter. Apple sold 7.54 million iPods, a 20 percent unit decline from the year-ago quarter.

They sold nearly 9.25 million units of a product, the iPad, that wasn't even part of the portfolio until recently. 

Pretty much every iPad they could make was sold.

"We're thrilled to deliver our best quarter ever, with revenue up 82 percent and profits up 125 percent," said Steve Jobs, Apple's CEO.

The company's 82% revenue growth and 125% earnings growth is not exactly coming off of a small base. Last year's numbers looked remarkable at the time yet Apple continues an unprecedented growth rate for a company its size.

This Forbes article points out China grew 6x year-over-year to $ 3.8 billion for the latest quarter.

Now, consider the valuation. The company is well on it's way to earning $ 25 to 27 billion this year and most likely much more next year. The stock is up substantially in recent weeks to new highs and approaching $ 388/share giving it a market value of $ 364 billion. Subtract the $ 76 billion in cash on the balance sheet and you have an enterprise value of $ 288 billion.

Is a $ 288 billion valuation too much for a business making $ 25 to $ 27 billion this year that's still growing rapidly?

It's the only company I can remember whose exceptional stock performance is upstaged by even more exceptional business performance. I said the following recently about Google but it applies even  more so to Apple:

There are many inferior businesses selling for much higher multiples of earnings these days.

Adam

Established small long positions in AAPL, GOOG, PEP at much lower than current market prices and MSFT slightly below recent prices
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational and educational use and the opinions found here should not be treated as specific individualized investment advice. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions.
 
Site Meter