Nearly one third of Apple's market value is backed by pure cash

Posted:
in AAPL Investors edited January 2014
An after-hours sell off of Apple shares resulted in the company's effective market capitalization falling to $436 billion, just over three times the size of its growing cash reserves, now worth $137 billion.

The bizarre turn, which occured after standard trading stopped on Thursday as Apple presented earnings, means that until trading resumes on Friday, the market has determined that Apple's operations, brand and all associated goodwill are worth just $299 billion, or $318 per outstanding share after considering its staggering cash position.

Justifying the temporary selloff, a series of reports described Apple's earnings as "flat," because while revenues were up, its reported profits were the same as the winter quarter of last year. However, as Apple's executives repeatedly pointed out, both back then and today, last year's winter quarter was a full week longer than this year's.

Comparing the two winter quarters' results over equal time periods of 13 weeks, Apple's revenues were up 25 percent and its earnings were up 13.5 percent over the year ago quarter.


AAPL


Source: Google


Apple has also been criticized for failing to sufficiently "innovate," although it appears the performance of company's record winter quarter was held back in large part because it was innovating so rapidly that it struggled to produce enough of the devices in its completely refreshed product lines to meet demand.

Apple's chief executive Tim Cook noted that supplies the new iPhone 5 and iPad mini remained constrained throughout the quarter. Additionally, Apple's thin new iMac design, unveiled uncharacteristically late in the year, was not available for purchase at all until late November, while supplies of its higher end model were held up into December.

The company's depressed share price was bantered around as "the beginning of the end" of Apple by a variety of pundits who both decried Apple's supposed lack of innovation (but who also failed to see any promise in the iPad when it was originally released, or alternatively needled the company for not jumping on the bandwagon of building a low cost netbook), but Apple itself stands to benefit from discounted shares as it executes plans to buy back billions of its own shares to make up for stock based compensation being offered to attract new hires and retain existing talent.
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Comments

  • Reply 1 of 53
    drblankdrblank Posts: 3,383member
    Failing to innovate? That's got NOTHING to do with why they sold what they sold and earned what they earned. Absolutely nothing relative to one another.

    If Apple releases new products and they have so much demand that they can't build them fast enough and they have some suppliers that are trying to meet parts ordered because they are ramping up the production of a new product and yields are down, that has nothing to do with whether is innovating or not. GOD, some of the dumbest statements come out of some of these so-called analysts and journalists. Why even report their dumb statements?

    Who are these pundits? Do they have a name? Or are they just idiots that just like to talk so they can hear themselves?
  • Reply 2 of 53
    sockrolidsockrolid Posts: 2,789member
    Great time to get hired by Apple. You'll never get a better incentive stock option price.
  • Reply 3 of 53


    Not too far from the 52 week low for a company that just had a record quarter and does not believe it can meet demand for iMac and iPad mini in this next quarter. I'm in for some more shares today. I wish they could take cash home from overseas though without all the taxes. Bigger dividends would be awesome too, but so would more expansion in the US.

  • Reply 4 of 53
    apple ][apple ][ Posts: 9,233member


     Apple is operating in totally uncharted territory, and is currently where no other tech company has ever gone before. On the list of the largest Corporate earnings of all time, Apple's just released Q1 2013 results is number four. Apple holds three spots out of the top ten, and there's not a single other tech company there on that list to see. The only other companies that Apple shares space with on that list is with oil companies. When you get that big and are selling more than anybody has ever sold before in the history of the world, I think that it's pretty unrealistic and downright ignorant to keep expecting record breaking results that no other company has ever achieved before.


     


    I think that the main cause behind the drastic sell off in AH is a combination of fear, stupidity, herd mentality and clueless people. Every tiny, negative thing (true or not) that has to do with Apple gets amplified at least a thousandfold, and leads to a very negative atmosphere surrounding the stock, including yesterday's ridiculous over-reaction. People talk about margins? Look at the damn margins of other tech companies, and anybody can see that Apples' are still very respectable and most other tech companies would kill to have Apple's margins.


     


    Apple made a shitload of money last quarter, more than ever before, but I guess that that's simply not good enough. With the way that the stock dropped, you'd think that Apple reported that they sold one hundred iPhone 5s in total and had negative earnings. The way that Wall Street reacts to and treats Apple as a company is a total joke. 


     


    I do also think that there might be something to be said about the law of large numbers. There are not endless Apple customers on planet earth, and even though there are still some emerging markets (China comes to mind), I think that there is a point where you will reach saturation in other, already established, developed markets. And to that I say, so what? That's just how things are. You can't change nature. Apple could release the best ever earnings in mankind's history, but if those earnings are one hundredth of a decimal point below the estimate of some analyst crackhead on Wall Street, then it is a complete and utter failure.


     


    I was lucky enough to sell yesterday before the drop, but I'll probably be buying back in soon again, especially at these laughable prices.

  • Reply 5 of 53
    Anybody who thinks the analysts and pundits are wrong can speak loudly by buying shares at the depressed prices.

  • Reply 6 of 53
    apple ][apple ][ Posts: 9,233member

    Quote:

    Originally Posted by LovejoyOne View Post



    Anybody who thinks the analysts and pundits are wrong can speak loudly by buying shares at the depressed prices.

     


    And I do. I'm never afraid to put my money where my mouth is. 


     


    And not all analysts and pundits are morons, just some of them. There are quite a few analysts who have come out already and they have stated that their price targets for Apple remain unchanged. Apple shares at these dirt cheap prices are certainly a bargain. 

  • Reply 7 of 53
    Wall Street is attempting to get Apple to invest in other startups and possibly to create new subsidiaries to spin off and generate IPOs. Apple accruing larger and larger percentages of its market value in total cash will reach a point where the market has to stop attempting to force Apple to do what it does not want nor need to do.
  • Reply 8 of 53


    Congrats Apple! F*** the haters.

  • Reply 9 of 53
    Fortunately Apple doesn't play to the investor market. Imagine if they were to spilt the stock 10-1... the price would take off like a rocket.

    They used to split the stock in the 80s and 90s, but haven't done this for a long long time now.

    When your biggest problem is you cannot keep up with demand, and you're generating 30% margins where everyone else generates 3%, what is the issue, really?

    60% of Verizon's smartphone sales were iPhones. I'm sure AT&T was more.

    With "problems" like this, who needs failure?
  • Reply 10 of 53


    So does that mean the "actual" P/E is 7.1!  I don't know the technical term - hopefully someone can provide it.  But here is how I got that:


     


    436B Market Cap - 137B Cash = 299B 'leftover' market cap.


     


    299B / 42B in yearly profit (for 2012) = 7.1!!!!

  • Reply 11 of 53
    No matter how you look at it, Apple's days as super-high growth stock is over. Back then, Apple can blatantly disregard market reaction%u2014they simply need to focus on their hyper growth activity and the stock will take care of itself after one or two blowout quarters of 80% growth.

    These days are over. Apple is still growing, at ~20%, and the market sees it becoming a "value" stock. Solid balance sheet, great brand name, familiar products... all are signs of a typical value play (think Johnson & Johnson, or Nestle). But Apple management still show complete disregard of investor's concern. There had been quite a few false rumors that a press release could have squashed, but management did nothing. Tim Cook only went so far as saying "you can judge demands for our product by looking at our orders". And with $137B in cash, they could have done so many things: more share buyback, increase dividends, special dividends, stock split, etc. The stock has fallen 35%, and management did nothing at all to stop the slide. As a shareholder, I'm extremely disappointed by the lack of communication and investor relations management from Apple.

    The stock may have fallen because a "disappointing" result (hint: I don't think so), but a lot of it has to do with management attitude toward the investors. They are one of the most investor-hostile company I have seen.
  • Reply 12 of 53

    Quote:

    Originally Posted by zoffdino View Post



    No matter how you look at it, Apple's days as super-high growth stock is over. Back then, Apple can blatantly disregard market reaction%u2014they simply need to focus on their hyper growth activity and the stock will take care of itself after one or two blowout quarters of 80% growth.



    These days are over. Apple is still growing, at ~20%, and the market sees it becoming a "value" stock. Solid balance sheet, great brand name, familiar products... all are signs of a typical value play (think Johnson & Johnson, or Nestle). But Apple management still show complete disregard of investor's concern. There had been quite a few false rumors that a press release could have squashed, but management did nothing. Tim Cook only went so far as saying "you can judge demands for our product by looking at our orders". And with $137B in cash, they could have done so many things: more share buyback, increase dividends, special dividends, stock split, etc. The stock has fallen 35%, and management did nothing at all to stop the slide. As a shareholder, I'm extremely disappointed by the lack of communication and investor relations management from Apple.



    The stock may have fallen because a "disappointing" result (hint: I don't think so), but a lot of it has to do with management attitude toward the investors. They are one of the most investor-hostile company I have seen.




    Maybe they should get out of the stock market? What's the point for Apple staying in, getting "capital" from "investors"?


     


    Billions of cash...


     


     


    Also, as a shareholder, you knew what kind of company Apple was. You invested in full knowledge and if you did not, your own fault for not doing your research. If you wanted to invest in a different company, what stopped you?


     


    Stop whining.

  • Reply 13 of 53

    Quote:

    Originally Posted by Apple ][ View Post


    And I do. I'm never afraid to put my money where my mouth is. 


     


    And not all analysts and pundits are morons, just some of them. There are quite a few analysts who have come out already and they have stated that their price targets for Apple remain unchanged. Apple shares at these dirt cheap prices are certainly a bargain. 





    Lucky you.

  • Reply 14 of 53
    jragostajragosta Posts: 10,473member
    zoffdino wrote: »
    No matter how you look at it, Apple's days as super-high growth stock is over. Back then, Apple can blatantly disregard market reaction%u2014they simply need to focus on their hyper growth activity and the stock will take care of itself after one or two blowout quarters of 80% growth.

    I really wish people would quit this 'growth stock' meme. Growth stocks almost always have P/E ratios above the market's average P/E because of expectations of future growth. Apple's P/E has been well below the market average for years (maybe for decades). Its characteristics are far more like a value stock than a growth stock.
  • Reply 15 of 53
    mubailimubaili Posts: 430member
    I would argue iPad mini is a monster hit. Many pundits prefer iPad mini over iPad for daily use. It is a real beautiful thing to hold. Now, screen size wise there is a gap between iPhone 5's 4 inch and iPad mini's 8 inch. I wish Apple would address that gap with another insane product in 2013 the way they addressed the small tablet form factor in 2012 with iPad mini. Then it is mission completed and Apple could move on to innovate other stuff.
  • Reply 16 of 53
    nealgnealg Posts: 132member


    I think the expectation, rightly or wrongly, for Apple was 50 million phones for the quarter. When they didn't hit that number, for some people, it didn't matter what else Apple reported, especially since so much of Apple's revenues are tied to the iPhone. I think this is one part of the reason for the sell off.


     


    I think the other reason for the sell off is the guidance. The upper end of the guidance range gives Apple only a 10% increase in revenues over the same quarter last year. With margins somewhat more contracted than last year(but still excellent), even though Apple didn't guide to earnings next quarter, it doesn't take much imagination to see that Apple is probably going to have earnings that are less than last year same quarter.


     


    I still think Apple is undervalued, especially with the sell off. The cash that Apple has on hand is just a sign of how undervalued Apple really is as the article really draws attention to. I am holding onto all of my shares right now because I see value at Apple that many are not seeing right now and I can wait since it is not money I need to live on. I may be wrong but I think the panic is way overdone right now.


     


    Part of the panic is really related to a change in the way people look at Apple. Apple was the 800 pound gorilla that has come off its pedestal. Apple's years of growing earnings by 50% or more are gone. Just the law of large numbers catching up. But, subtracting out the cash, I don't feel that Apple should be valued at less than 10 times earnings. It is unfortunate but Apple's past success really got investors used to large growth numbers(even though it wasn't valued at a high growth rate with the PE contraction we have seen over the past 2 years), even though I have seen a change in the guidance with Tim Cook trying to make things more realistic. If expectations are brought to a more normal range for Apple, if they can continue to hit their numbers and not the overblown analyst expectations, then Apple can be more fairly valued and we should see some appreciation from here.


     


    One other thing that may be coming to play. I am thinking the high share price of Apple gets some investors to think that Apple is priced for perfection and any stumble means that it isn't worth the present day price. If Apple had split the stock some time a while back, I wonder if the sell off would have been as bad. Just a thought.


     


    Anyway, just my opinion. 

  • Reply 17 of 53
    jungmarkjungmark Posts: 6,800member
    Everybody knew Jobs reinvented markets every year. That's why there are 15 different product lines. Oh, wait. Imac, iPod, iPhone, MBA, iPad ? That's it? Apple should have failed a long time ago. /s
  • Reply 18 of 53
    mubailimubaili Posts: 430member
    From Tim Cook, "On iPad in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is." I am really excited.
  • Reply 19 of 53
    lkrupplkrupp Posts: 8,991member
    "They are one of the most investor-hostile company (sic) I have seen."

    Good for them! Greedy investors have ruined many a promising company by pressuring management for quick, short term profits. That's why we hear the drumbeat for cheap, bottom of the barrel iOS devices. Investors put so much pressure on companies to meet unrealistic expectations that blunders are rampant.

    This article proves that taking Apple private could actually happen. I say let all the "disappointed" investors take a hike and drive the price down even further. Then take it private with cash on hand and give the finger to Wall Street.
  • Reply 20 of 53
    blitz1blitz1 Posts: 413member


    Hear hear, everybody's wrong


    Only the Apple fans are right.


     


    I love Apple. I have:


    - an iPhone 4S


    - a MacBook Air  13''


    - an iMac 27'' (just came out, yeeh)


    - 4 iPods


    - an old iMac 21''5


     


    But do you mind me trying to keep the record straight.


    Some things are really not OK


    - waiting 1,5 months to get my latest iMac


    - the Apple stores


    - iPhone after iPhone 4


    - the Cloud


    - ...


     


    and if I were an investor, I'd also be worried about


    - margins


    - price points


    - dropping market share


    - the supply chain


    - litigate iso innovate


    - ...

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