The enthusiastic response to the iPod Touch resulted in flatter sales volumes for iPods overall but an Average Sales Price of $181, up 72%. Apple still met its guidance for iPod sales, selling 22,121,000 units, representing five percent unit growth and 17 percent revenue growth over the year-ago quarter.
Somebody did a wrong calculation, I re-read the earnings call transcript and they said "ASP increased to $181" - I think that the 72% bit was added by the apple insider editors or something, not only is it wrong (as far as I can tell anyway) - Appleinsider is the only place where that figure shows up (also as far as I can tell). The only 72% number that I can find is Apples marketshare in players, maybe that is what was meant and there was a bit of an editing mistake or something.
Anyway, it does not matter. Do you think that the average sales price of an iPod can keep on going up? Average sales prices can only add a few more quarters of growth at most - average sales price increases are a short term story, not providing the kind of long term growth that justifies a high P/E ratio.
Anyway, it does not matter. Do you think that the average sales price of an iPod can keep on going up? Average sales prices can only add a few more quarters of growth at most - average sales price increases are a short term story, not providing the kind of long term growth that justifies a high P/E ratio.
The sales price going up shows that people are moving towards the high end models, in many cases the touch.
Prices don't have to keep going up indefinitely...do you think that the growth rate can't increase again in the future when more people start migrating to iPhones, touches, and other new models from apple?
Why does the market have to grow, anyway? It can remain at a high figure, turning over lots of cash and remaining steady. Declining is a different matter.
Growth is also not always a good thing: Starbucks is trying to slow its growth in the US because it was getting too big, too fast. Sometimes its better to solidify your position.
But then, I don't play the stock market and couldn't give a hoot about making money off of someone else's efforts. I don't believe in free rides; then tend to be rather dangerous (aapl is down 27 points right now and I am not worried at all).
The sales price going up shows that people are moving towards the high end models, in many cases the touch.
Prices don't have to keep going up indefinitely...do you think that the growth rate can't increase again in the future when more people start migrating to iPhones, touches, and other new models from apple?
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Quote:
Originally Posted by Bergermeister
Why does the market have to grow, anyway?
Apple can only command a premium P/E if it is growing fast, when it stops growing fast the P/E ratio contracts (because it is then competing with treasury bills and other non-growth investments).
Why does the market have to grow, anyway? It can remain at a high figure, turning over lots of cash and remaining steady. Declining is a different matter.
Growth is also not always a good thing: Starbucks is trying to slow its growth in the US because it was getting too big, too fast. Sometimes its better to solidify your position.
But then, I don't play the stock market and couldn't give a hoot about making money off of someone else's efforts. I don't believe in free rides; then tend to be rather dangerous (aapl is down 27 points right now and I am not worried at all).
haha You make investing sound like easy money. If I were to sell today I would be down "a bundle" from a month ago. I hardly consider that a free ride.
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Apple can only command a premium P/E if it is growing fast, when it stops growing fast the P/E ratio contracts (because it is then competing with treasury bills and other non-growth investments).
Thank the gods that I didn't get into financial stuff. What a strange place. I think it's time to go see what the neighbor's cat is up to...
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Apple is still selling plenty of ipods to new customers and selling upgrades to existing iPod owners. The touch and iPhone provide existing users a reason to upgrade as well as more incentive for new customers. And apple will continue to develop new versions in the future with even more functionality.
If apple was just selling mp3 players, the market would eventually get saturated and sales would peter out. As they add new features, they keep reinventing the market and give people a reason to buy the new models (which can be more expensive if they are compelling enough).
haha You make investing sound like easy money. If I were to sell today I would be down 6 figures from a month ago. I hardly consider that a free ride.
Investing can be fairly easy money as long as you have a good strategy. And a big part of that strategy is investing for the long term.
It's smart to be conservative with investing, but it's dumb to be TOO conservative. Investing in individual stocks is definitely risky, but things like index funds are generally pretty safe, especially if your timeframe for investing is long enough (investing for retirement).
It's a huge mistake to avoid investing just because it seems risky, going with investments that barely beat inflation is throwing money away.
Apple is still selling plenty of ipods to new customers and selling upgrades to existing iPod owners. The touch and iPhone provide existing users a reason to upgrade as well as more incentive for new customers. And apple will continue to develop new versions in the future with even more functionality.
If apple was just selling mp3 players, the market would eventually get saturated and sales would peter out. As they add new features, they keep reinventing the market and give people a reason to buy the new models (which can be more expensive if they are compelling enough).
Too bad that does not seem to be showing up in the quarterly numbers, then.
Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...
Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)
It doesn't help that the financial analyst community is currently in a very pessimistic mood, but with $3 per share in actual earnings, Apple is on track to meet earnings of $6-8 per share for 4 consecutive quarters. One would think this might justify a stock price of a lot more than current value ($120) in the long term...
Excellent point! The financial analysts haven't even pointed that out.
Excellent point! The financial analysts haven't even pointed that out.
Yet another factor to increase earnings going forward. At some point, iPods reach market saturation. But not only does apple have newer offerings for existing iPod owners, and not only are they higher priced (and more fully featured), they are also models that are ongoing revenue sources for apple. The number of iPods sold in a quarter can't keep increasing forever, but it doesn't have to.
Yet another factor to increase earnings going forward. At some point, iPods reach market saturation. But not only does apple have newer offerings for existing iPod owners, and not only are they higher priced (and more fully featured), they are also models that are ongoing revenue sources for apple. The number of iPods sold in a quarter can't keep increasing forever, but it doesn't have to.
Good observation. Yes, at some point, iPod unit volume will reach saturation. I am sure Apple recognized this is coming, and they did exactly the right thing: Increase the average iPod selling price by offering more value (i.e. features & functionality). 72% in average selling price is an amazing accomplishment. Of course, the continuing price erosion in the flash memory market and high resolution small form factor LCD market helps Apple to a great extent...
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...
The dip in the broader markets could account for most of the recent dip in Apple's price. Analysts will be looking at Apple's unit growth guidance over the next few quarters to see whether the recession -- we are in one after all -- will have much an impact on Mac, iPhone, iPod, etc., sales.
72% in average selling price is an amazing accomplishment. Of course, the continuing price erosion in the flash memory market and high resolution small form factor LCD market helps Apple to a great extent...
We already talked about that - the 72% isn't true, it is an editing mistake or something - the real number is 12%
I bought in at $132 just now (I previously sold at $149 before the run up to $200) based on the deferred profit insightfulness above. I would have been sitting pretty if I had not bought Cisco at $30 after selling Apple at $149.
Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference?
That type of thing shows up from time to time. I think most of the difference is money from interest on their pile of cash. IIRC, it isn't counted as profits.
Quote:
Originally Posted by macshark
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter.
Apple sold more iPods this quarter than any other quarter, the iPod unit sales aren't lower, they're still growing, just not as quickly as before.
iPod sales growth is crap, so the iPod business is just a no-growth cash cow now (kind of like most of Microsoft)
Unit growth wasn't the same but revenue growth was nearly the same. Last 50% unit growth for 18% revenue growth. This year 5% unit growth for 17% revenue growth.
Which means Apple did not sell many more this year than last. But sold more expensive iPods this year than last. The iPhone cannibalized iPod sales this year. Which is OK because its higher revenue item.
Comments
From the article:
The enthusiastic response to the iPod Touch resulted in flatter sales volumes for iPods overall but an Average Sales Price of $181, up 72%. Apple still met its guidance for iPod sales, selling 22,121,000 units, representing five percent unit growth and 17 percent revenue growth over the year-ago quarter.
Somebody did a wrong calculation, I re-read the earnings call transcript and they said "ASP increased to $181" - I think that the 72% bit was added by the apple insider editors or something, not only is it wrong (as far as I can tell anyway) - Appleinsider is the only place where that figure shows up (also as far as I can tell). The only 72% number that I can find is Apples marketshare in players, maybe that is what was meant and there was a bit of an editing mistake or something.
Anyway, it does not matter. Do you think that the average sales price of an iPod can keep on going up? Average sales prices can only add a few more quarters of growth at most - average sales price increases are a short term story, not providing the kind of long term growth that justifies a high P/E ratio.
Anyway, it does not matter. Do you think that the average sales price of an iPod can keep on going up? Average sales prices can only add a few more quarters of growth at most - average sales price increases are a short term story, not providing the kind of long term growth that justifies a high P/E ratio.
The sales price going up shows that people are moving towards the high end models, in many cases the touch.
Prices don't have to keep going up indefinitely...do you think that the growth rate can't increase again in the future when more people start migrating to iPhones, touches, and other new models from apple?
Growth is also not always a good thing: Starbucks is trying to slow its growth in the US because it was getting too big, too fast. Sometimes its better to solidify your position.
But then, I don't play the stock market and couldn't give a hoot about making money off of someone else's efforts. I don't believe in free rides; then tend to be rather dangerous (aapl is down 27 points right now and I am not worried at all).
The sales price going up shows that people are moving towards the high end models, in many cases the touch.
Prices don't have to keep going up indefinitely...do you think that the growth rate can't increase again in the future when more people start migrating to iPhones, touches, and other new models from apple?
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Why does the market have to grow, anyway?
Apple can only command a premium P/E if it is growing fast, when it stops growing fast the P/E ratio contracts (because it is then competing with treasury bills and other non-growth investments).
Why does the market have to grow, anyway? It can remain at a high figure, turning over lots of cash and remaining steady. Declining is a different matter.
Growth is also not always a good thing: Starbucks is trying to slow its growth in the US because it was getting too big, too fast. Sometimes its better to solidify your position.
But then, I don't play the stock market and couldn't give a hoot about making money off of someone else's efforts. I don't believe in free rides; then tend to be rather dangerous (aapl is down 27 points right now and I am not worried at all).
haha You make investing sound like easy money. If I were to sell today I would be down "a bundle" from a month ago. I hardly consider that a free ride.
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Apple can only command a premium P/E if it is growing fast, when it stops growing fast the P/E ratio contracts (because it is then competing with treasury bills and other non-growth investments).
Thank the gods that I didn't get into financial stuff. What a strange place. I think it's time to go see what the neighbor's cat is up to...
haha You make investing sound like easy money. If I were to sell today I would be down 6 figures from a month ago. I hardly consider that a free ride.
As indeed I said: there is danger involved. It's a risk that I simply will not take.
To even have zero growth, every existing iPod owners has to upgrade their iPods/iPhones every three years as it is. Existing customers do not provide meaningful revenue growth - new customers do. Existing customers just keep the zero growth part alive.
Apple is still selling plenty of ipods to new customers and selling upgrades to existing iPod owners. The touch and iPhone provide existing users a reason to upgrade as well as more incentive for new customers. And apple will continue to develop new versions in the future with even more functionality.
If apple was just selling mp3 players, the market would eventually get saturated and sales would peter out. As they add new features, they keep reinventing the market and give people a reason to buy the new models (which can be more expensive if they are compelling enough).
As indeed I said: there is danger involved. It's a risk that I simply will not take.
Gotcha. That "free rides" comment through me off and put me on a slight defensive.
PS: could you edit your post to remove the 2nd sentence. I shouldn't be posting such figures, even if they are vague. Thanks.
haha You make investing sound like easy money. If I were to sell today I would be down 6 figures from a month ago. I hardly consider that a free ride.
Investing can be fairly easy money as long as you have a good strategy. And a big part of that strategy is investing for the long term.
It's smart to be conservative with investing, but it's dumb to be TOO conservative. Investing in individual stocks is definitely risky, but things like index funds are generally pretty safe, especially if your timeframe for investing is long enough (investing for retirement).
It's a huge mistake to avoid investing just because it seems risky, going with investments that barely beat inflation is throwing money away.
Apple is still selling plenty of ipods to new customers and selling upgrades to existing iPod owners. The touch and iPhone provide existing users a reason to upgrade as well as more incentive for new customers. And apple will continue to develop new versions in the future with even more functionality.
If apple was just selling mp3 players, the market would eventually get saturated and sales would peter out. As they add new features, they keep reinventing the market and give people a reason to buy the new models (which can be more expensive if they are compelling enough).
Too bad that does not seem to be showing up in the quarterly numbers, then.
Too bad that does not seem to be showing up in the quarterly numbers, then.
I guess you're just interpreting the numbers differently.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...
Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)
It doesn't help that the financial analyst community is currently in a very pessimistic mood, but with $3 per share in actual earnings, Apple is on track to meet earnings of $6-8 per share for 4 consecutive quarters. One would think this might justify a stock price of a lot more than current value ($120) in the long term...
Excellent point! The financial analysts haven't even pointed that out.
Excellent point! The financial analysts haven't even pointed that out.
Yet another factor to increase earnings going forward. At some point, iPods reach market saturation. But not only does apple have newer offerings for existing iPod owners, and not only are they higher priced (and more fully featured), they are also models that are ongoing revenue sources for apple. The number of iPods sold in a quarter can't keep increasing forever, but it doesn't have to.
Yet another factor to increase earnings going forward. At some point, iPods reach market saturation. But not only does apple have newer offerings for existing iPod owners, and not only are they higher priced (and more fully featured), they are also models that are ongoing revenue sources for apple. The number of iPods sold in a quarter can't keep increasing forever, but it doesn't have to.
Good observation. Yes, at some point, iPod unit volume will reach saturation. I am sure Apple recognized this is coming, and they did exactly the right thing: Increase the average iPod selling price by offering more value (i.e. features & functionality). 72% in average selling price is an amazing accomplishment. Of course, the continuing price erosion in the flash memory market and high resolution small form factor LCD market helps Apple to a great extent...
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...
The dip in the broader markets could account for most of the recent dip in Apple's price. Analysts will be looking at Apple's unit growth guidance over the next few quarters to see whether the recession -- we are in one after all -- will have much an impact on Mac, iPhone, iPod, etc., sales.
72% in average selling price is an amazing accomplishment. Of course, the continuing price erosion in the flash memory market and high resolution small form factor LCD market helps Apple to a great extent...
We already talked about that - the 72% isn't true, it is an editing mistake or something - the real number is 12%
I bought in at $132 just now (I previously sold at $149 before the run up to $200) based on the deferred profit insightfulness above. I would have been sitting pretty if I had not bought Cisco at $30 after selling Apple at $149.
Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.
Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference?
That type of thing shows up from time to time. I think most of the difference is money from interest on their pile of cash. IIRC, it isn't counted as profits.
It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter.
Apple sold more iPods this quarter than any other quarter, the iPod unit sales aren't lower, they're still growing, just not as quickly as before.
iPod sales growth is crap, so the iPod business is just a no-growth cash cow now (kind of like most of Microsoft)
Unit growth wasn't the same but revenue growth was nearly the same. Last 50% unit growth for 18% revenue growth. This year 5% unit growth for 17% revenue growth.
Which means Apple did not sell many more this year than last. But sold more expensive iPods this year than last. The iPhone cannibalized iPod sales this year. Which is OK because its higher revenue item.