Apple price targets reduced as company's growth slows to 'normal' levels - Page 2

It's absolutely true when you grow past a certain market cap.  

 

No dividend no investors.   A healthy dividend is how Microsoft maintains their market cap.  

 

A stock that grows forever is a ponzi scheme.  

They probably should also lower their prices and increase their margins too.

 

It's all Business 101! Too bad Apple doesn't know how to run its business.

 

/s

Alfred E. Newman?

Just making stuff up now? Revenue was up - and that was with one less week of sales, so it was really way up. Profit was flat because of a temporary decrease in gross margin.

 

Ok instead of flat they went from 70% yoy to 8% yoy.  Apple is own by mostly "growth funds".  Any companie with that kind of growth deceleration will get hammer to the ground.  Apple need to transition from a growth stock to a value/income stock and to do that they need to rise dividends.

 

and dont served me that "good use of cash" garbage, they could double the dividend and still continu to pile up cash earnings after earnings. But 4% yield would help make the transition. 

 

What really hurt the stock is the call, they guide no growth in fiscal Q2 and said they were not  lowballing it from now on.  This is when the stock really tank hard in AH. Horrible conference call, the more they talked the worst it got.

Edited by herbapou - 1/24/13 at 10:21am

 

Well they guided Q2 with the same margins, so not so sure its temporary.  And I will served you what the fanboys served the other companies : Apple makes all the profit with a small market share. Guess what, they had 20% and 45% growth in sales for the same profit.  Revenue doesnt mean anything for the stock, EPS is what counts. And margins are still very very high even at 38%, they must continu to come up with top of the line cutting edge products just to stay there.

 

The most important things to do for growth is to diversified the iphone line with multiple screens and come up with a good low price phone (not cheap, but top of the tine lowcost).  Growth is now in emerging markets and those people cant afford high end phones, even if they finance them.

 

btw I am not a short term investor , I own stocks and options that expires in january 2015.

Edited by herbapou - 1/24/13 at 10:25am

let's break it all down:

 

first, the stock market. there are three kinds of buyers - traders, speculators, and investors.

 

traders are the pros who make money whether prices go up or down, using all the short term tricks of the trade. they have a big impact on day-to-day stock price movements (like the exact $500 price close recently), but not long term. right now they are either getting out of Apple or making complex trading bets on where it will be in the months ahead. this is pushing the price down presently.

 

speculators are the ones seeking "growth" stocks based on hype, hope, or some crystal ball that they will go up in price significantly faster than the overall market within months or a year or two. this is the group that has now abandoned Apple and is dumping it, after propelling it upward recently, which is definitely pushing the price down right now.

 

investors are the multi-year long-term buyers who seek a modest but steady return at low risk that is still better than alternatives like bonds and other financial instruments. pension funds, mutual funds, etc. they pay attention to fundamentals like P/E ratios. they are holding Apple now and will start to buy soon when it stops falling.

 

second, Apple's business (here are some great charts: http://www.splatf.com/2013/01/apple-dec12earnings-charts/):

 

as many above note, Apple has gone through a spectacular revenue/profit growth phase in the last five years thanks to the addition of two new hugely successful products, the iPhone and the iPad. it previous two main products, the Mac and iPod are now just modest contributors to its revenues.

 

so to remain a "growth" stock attractive to the speculators, Apple would need to come out with yet another new groundbreaking product to add to what it has now - every three years! i doubt that is possible in any event. but maybe every five years ... we'll see. we all have our notions about what that could be.

 

but in any event there are solid prospects for steady and substantial growth in sales for all Apple products except iPods for years ahead. the near-universal shift to portable computing devices is only partly done, and global markets for smartphones/iPhone and tablets/iPad are clearly not yet "saturated" (China!). these are not "mature" markets - that will take 5-10 years - and Apple will continue to take a big chunk of their significantly expanding new revenues until it is.

 

so successful competition is the only real identifiable risk for Apple in coming years. and that is really up to Apple's leadership team to, indeed, keep making the best products they can. for me, the key indicator of that this year will be iOS 7 and iCloud. both need significant improvements to keep up and surpass the competition. we'll see ...

Temporary?

Expectation.. That was the word that leads a debacle in Earnings of Apple.Those days are Gone when Markets use to follow Apple.Apple needs to come up with a cheaper Iphone if it really wants to sustain its dominance. Public sentiment is also reversed in few months about apple stock.

Part of the problem is Tim cooks leadership. If Apple has no significant new product in the next few years it will be seen that Jobs could produce a product but Cook could not. And we know that Steve thought they had solved the TV interface heuristic years ago. Cook is a conservative. He is managing a low growth dividend paying old school company. A buy back some stock company and dissapear money into nothingness.

The board should give him 6 months. Get the stock back to a p/e of 15 at least or go. Rehire Forstall. .

You're exactly right. Apple has to lower its margins in order to regain confidence in the market.

 

(WTF??!!)

You're right. I remember Steve bringing out a groundbreaking new product every year since 1997. Year after year after year, new technology, new categories.

 

(Huh??!!)

Yep. This has been explained many times, including by Oppenheimer in the 2012 Q4 earnings call. The simultaneous launch of so many products in parallel required a heavy capital investment. This has created a temporary pressure on gross margins. As the products continue to sell, that margin improves because the capital investment is amortized over a larger volume of units. That's why Apple has been brilliant in using older models to provide lower cost models. I suspect that the iPhone 4 will next be transitioned into the "low cost without a subsidy" model for emerging markets. It makes more sense than the have kept the 3GS for that purpose due to more shared components and manufacturing processes with the 4S (and maybe even 5).

So you're saying that Apple won't be bringing out any new product over the next year?

A Ponzi scheme is one where the outgoings inevitably exceed the outgoings. Dividends have nothing to do with Apples price - they have collapsed since announcing dividends.

The real reason is the assumption that Apple is now going to see margins and EPS fall because of commoditisation. This means Apple need to

a) release a new high end product ( cough, TV )
b) recover from sales slowdown with newer lower level products. Hoping for little cannibalisation.

And stop dividends.
Edited by asdasd - 1/24/13 at 10:55am

The market has priced in margins of about 20% today. So , yeah. A low end product and a high end product where sales exploded but margins dropped to , 30%, would see the stock explode.

For now the market sees Apples only high margin product as stalled in y-o-y revenue and the mini eating into the iPad.

 

I wouldn't be so sure about that.

 

Mini eating into the iPad? Yeah... sure. I think that contradicts what you said in the first paragraph.

Add to that...

500 million iTunes/App account holders in 150 countries

250 million iCloud Accounts

121 Million visitors to abut 400 stores in the quarter

 

That's a distribution (& money printing) system LIKE NO OTHER!

Low share price now is a joke.

Are you drunk? Besides the mac (easy explanation.. one less week, problems with demand for retina models (v1.0) and iMac), iPhone growth was huge and iPad growth was out of this world.

 

What are you talking about, here? People are forgetting that this was the best quarter the world has ever saw (revenue).

In fact selling last years model has been an unmitigated disaster. Apple is competing with its own secondary market - second hand devices which you can buy from eBay, Amazon, bob down the road or Apple - is that Apple book a tiny percentage of that market. They would be better served with somebody ignoring eBay and buying a new cheaper device for a present for Mom.

also better for the recipient. If you get an iPhone 4 now how many years of iOS updates do you get? Answer : N -2 where N is the number of updates the 5 will get. Very close to N-3.

That's a crap strategy.

Did you mean "seen"?

I want Apple to crush Android. Not scrape by. This was rubbish.

Also you highlighted sales slowdown - I meant sales slowdown growth

Sure there are technical reasons but..... Cook is not achieving.

That's impossible! How can Apple outsell 3000 OEMs with their fabs on obscure countries that do not care about human rights? They have 1 single line, and they can't even keep up with demand! Right know, Apple is full gas and making 11 billion per quarter of net profit per quarter because of iOS and it's ecosystem.

 

Outselling android? Impossible. That would mean 90 billion per quarter from iOS. They would need to find a way to sell 300 million devices per quarter to go head to head and, guess what? The industry would collapse. I don't want that.

 

Sorry for my english. 

The problem is that that the mini is a better product than the main iPad. I have the latter and I got my sister the mini for Christmas. I prefer the mini. The weight in particular.

It's hard to make that mistake with the iPhone. Just restrict the lower end to 3G for now , etc.

75 million iOS devices is not crushing Android?

You need to rethink your position that 38% gross margins is a temporarily low margin.

This is a different market from 2011 and 2012.  Don't expect it to rise.  Apple is not expecting it to rise per their own guidance.

 

it's very improbable that Apple will introduce a new product with such differentiation that it can demand those same high margins as the iPhones in the past, WHILE ALSO snuffing out all competition.

 

However, even if you were to surrender that point...don't be alarmed.  The extremely low share price & PE is still unreasonable.

 

A rational market cap is the NPV of all expected future payouts. Any other definition is irrational. A company that never intends to pay out any cash has no value. That does not mean that a company that currently does not pay out cash has no value.

 

To bring it back to the original point, increased earnings should not imply increased stock price. Increased earnings may reflect decreased expected future payouts. Of course Graham's statement always holds true, paraphrased, in the short term the stock market is a popularity content, in the long run it's a scale.

Sorry, but you're just plain wrong. Apple's market cap was higher than any company in the world last year - and they weren't offering dividends. Many large companies don't pay dividends - Google. Amazon. Berkshire Hathaway. Merck. Amgen.

There's absolutely nothing that says a company can't attract investors without dividends. In fact, history shows otherwise.

Not even close. You obviously need to stop talking about financial matters since you don't have a clue what you're talking about.

A ponzi scheme is a company which keeps taking money from new investors so it can pay existing investors a dividend or other payout. If a company is not paying a dividend, it isn't a Ponzi scheme.

Seems to me that the change is more about Tim Cook publicly calling them out over their ridiculously overinflated estimates that the analysts knew would never be reached and then them scamming doom and gloom over that

Cooks comments were a challenge to them to be more thoughtful etc and they took it.

Yes, and the CC confirmed that for Jul-Dec qtr, the # of minis to regular iPads would've been even greater if it weren't for supply constraint.  Mini demand is high.  Guidance shows GM fairly conservative, probably partly in regards to anticipated higher mix of Minis as opposed to regular iPads.

 

If economy were sky high, things might be different (regardless that I also think that the mini is actually better/lighter/smaller)...if economy were great, Apple would be able to introduce higher end (and more innovative) products which typically come with higher GMs.  But that's not the case.  And competition has done a great job at copying at the expense of Apple.

That's an absurd definition. So by your definition, Berkshire Hathaway, Merck, Amgen, Google, and Amazon have no value at all since they don't pay dividends and have publicly stated that they never intend to. And Apple had no value last year (when the market cap was $600 B or so) but it is suddenly valuable today (when the market cap is $400 B or so) because it's paying dividends.

That's so wrong it's hard to believe anyone could espouse such a concept.

In reality, the market value approaches the NPV of TOTAL RETURN of the stock (which is dividends AND capital gains). There are other factors like risk involved, but the essence is that people invest on the basis of their investment being worth more tomorrow than today. That can be capital gains just as easily as it can be dividends.

Because they are Apple. Flat, non falling earnings, and slow but steady growth is fine for everyone else. But not Apple. Why? Because they are Apple.

Get used to it. Because doing things designed to make more money for investors is likely part of that 'revenue for revenue's sake' that Cook said will not happen on his watch (just as it didn't under Steve).

If that bothers you, sell now.

I am seeing more and more analysts call for Tim Cook's head. They want him to resign or be fired and think Forestall should be brought back because Apple needs a visionary like Jobs again and Cook isn't up to the task. I think Tim is a good C.E.O. and he has made some missteps but is up to the task and needs to stay right where he is.

One thing that is concerning is that over 70% of people around the world get no phone subsidies. Zero, zilch, nada. So even a $450 old iPhone is still expensive. Apple doesn't need to make a cheap crappy iPhone, but they could consider at least a cheaper iPhone for that market. Even in America subsidies are now a lot tighter than the old days. ETF's are up, upgrade waits are longer, T-Mobile has introduced cheaper plans for people that bring their own device without a subsidy. The iPhone does fantastic when it cost the same $199 price as an Android, but not so great when you have to pay $800 vs $400 for a similar experience and specs. Had the U.S. carriers continued their old upgrade policies I think Apple would have easily beat 50M iPhone sales. I used to be able to get a new phone once a year but now have to wait 18 months.

I am not sure how Apple can turn around this massive stock decline anytime soon. I sure hope they do since I own a lot of shares. I think they will have to come out with something brand new like they did with the iPad. It doesn't have to be nearly as successful and probably nothing could, but something to get people excited again. Perhaps it might even be iOS 7 where we might see some massive improvements and possibilities that leave Android in the dust. Perhaps it might be with cars where an iOS A/V nav system is introduced and is so good that every new car buyer views it as a must have option. Even better if they allowed it for after market sales as well since I just bought a new car but would probably love an iOS system better than the one in my car. None of us know for sure, but don't ever bet against Apple.
Edited by gwmac - 1/24/13 at 11:39am

Anybody know if Tim Cook is a Railroad Tycoon player?  Cuz it seems like AAPL's using my tried and true RRT strategy: artificially limit revenue across sequential quarters by inhibiting production, driving the stock down from its highs, then initiating a buyback of stock with capital on hand.

I sure hope so. A buyback would halt the decline real quick. He needs to do something and hope they have a great plan in place otherwise we might be looking at breaking the $399 barrier next. 

I thought you were making sense, until this.

 

Are you suggesting that non-dividend-paying stocks have no value!?

I sincerely hope -- for your sake -- you're not invested in the market (at least, not directly).

Please tell us, oh Great One.....

The stock market pays my bills, university tuition, and my capital keeps growing.  I doubled up last year, and am already up around 15% this year... Although I somewhat regret selling my RIM shares when I did...  

When growth slows and the company becomes 'mature', then dividends and buybacks are incentive for investors to hold on or buy more shares.  Otherwise they sell, take their profit, and move on to the next company.