Wednesday, January 19, 2011

Q1 2011 Actuals - My grades and beyond

An incredibly wild day today for an Apple shareholder..  The news about Steve Jobs released yesterday, coupled with an amazing quarterly report caused a wild swing as most people expected.  The actuals vs. my projections..

Actual Revenue - -  26.74 b
Dennis' Revenue  -   27.80 b (5%over) Grade C

Actual EPS - - - - - - 6.43
Dennis' EPS - - - - -   6.61 (2.7% over)  Grade B

Actual iPhone - - -  16.24m
Dennis' iPhone - -    18.35m (13% over) Grade F  ouch!

Actual iPod - - - - - 19.45m
Dennis' iPod - - - -   18.90m (2.8% under) Grade B

Actual iPad - - - - - 7.33m
Dennis' iPad - - - -   7.25m  (1.4% under) Grade A

Actual Macs - - - -  4.12m
Dennis' Macs - - -   4.46m (8.4% over) Grade D

Actual GM - - - - - - 38.5
Dennis' GM - - - - -   38.5  (dead nuts)  Grade A

Overall - My gross miscalculation of the iPhone units sold, killed me .. I miscalculated - mainly due to supply line constraints, I really thought it was wide open, but Oppenheimer's comments in the conference call has convinced me otherwise. - C

"iPhone sales were somewhat constrained by supply, Oppenheimer said, even though total unit sales of 16.2 million beat analysts’ estimates."

I guess the real question is - does "somewhat constrained" equate to 2.11 million units?  Well, I say yes.

Enough about me -  The big news here is - the Steve Jobs news vs. blowout quarter, and which one carries the most weight. 

Here's my take:

This Steve Jobs announcement is carefully planned and contrived.  This is a long term plan to slowly convince the world that Steve Jobs has a real succession plan in place.  

Think about it.  This company is doing everything right. EVERYTHING.   How could they (Jobs / The board / Senior execs) leave succession planning out?  Especially knowing the global appreciation, admiration, and mystical status of their CEO.  How could they NOT do this right?

Tim Cook / Oppenheimer / and the the senior VP's have got a firm hand on this company, and to me, this is thoroughly obvious.  Let's face it - Job's can't do this by himself, and he certainly cannot run this company while he's sick.  Steve Jobs had a liver transplant.  A liver transplant! Why are people surprised when he needs to take time off? When is the last time any of us have had an organ transplant? How many people do you personally know that have been through something like this?  Oh - let's not forget, 5 years earlier the man had pancreatic cancer. My God - What Steve Job's has been able to accomplish under these circumstances is remarkable.  I do not take anything away from Mr Jobs when I say that he has had to delegate a tremendous amount in the last 6 years.  If any company is ready for succession, it's definitely Apple.  Enough said.

Now that I've finished my rant, I'll get back to the future..

Long Term - I'm convinced that leadership is solid, even when Jobs retires, or backs away - Long term, this company is in great shape and I still believe that Apple will hit 590 by mid 2012.  This is especially true if they do something with their cash. They must do something eventually. I'm holding my shares, I'm going to enjoy the ride all the way to 800. There is just too much opportunity out there, and they made it very obvious in the conference call that they are going to aggressively pursue Asia (China) and go after PC market share. Firing on all cylinders is an understatement. I believe that by the time we get to 800, the numbers will be so gargantuan, that, eventually - say by the end of 2013 -  it's going to be difficult to put together the percentage gains that we saw today.  At the end of this post, I'll include an explanation of the law of large numbers that puts this in perspective.

Short term - It's a roller coaster / rough and rocky ride.  All of you options traders out there, that are adept at this should have fun timing the high and low tides of this stock. If you have a talent for that, maybe you can teach me.. I need to learn. It's just hard to say, because of they way people panic. I think it's going to take 2 - 3 weeks for the stock to settle down, and the fear of the Steve Job's news to subside, then the stock will climb based on strong valuation, and new product leaks / news / speculation.

Law of Large Numbers 

As an example, assume that company X has a market capitalization of $400 billion and company Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must increase its market capitalization by $200 billion, while company Y would only have to increase its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more likely that company Y will be able to expand by 50% than company X.

The law of large numbers makes logical sense. If a large company continues to grow at 30-50% every year, it would eventually become bigger than the economy itself! Obviously, this can't happen and eventually growth has to slow down. As a result, investing in companies with very high market capitalization can dampen the potential for stock appreciation.

Resource - Investopedia

I've heard people in the blog-o-sphere say phooey to this concept, but it makes sense to me, I mean, the law has to apply eventually. Even with that being said, Who's to say when the law kicks in?  WalMart is at 420 billion / year and they are growing at about a 2% clip.   I believe that Apple can grow at the current rate for another 1.5 - 3 years, as crazy as it sounds,  We're looking at 105 billion + in FY 11. That puts FY 12 at 168 billion and FY 13 at (gulp) 256 billion.. This is 60% for each year.  Apple's revenue in FY 09 was shy of 43B..  Those 60% projections seem so crazy, I'm afraid to hit the publish button.  That SHOULD put the stock in the 1000 dollar range..  theoretically.

2011 is going to be a big year for the market.

This is what could happen if the scenario I've described plays out:
aapl = 425 by August 2011 / 590 by July 2012 / 800 by December 2013..

I've been holding since 2004 - I always said I would hang on to this for 10 years then cash and spread it out for a few more years.. So far so good.

Phenomenal iPad and iPhone sales worldwide. International sales grew to 62% I can't see anything stopping this machine, especially when China really takes hold. Verizon iPhone is small potatoes as compared to the China dynamic.

For those that are interested - I finally finished my cancer story.

Thanks for stopping by,
                 Dennis Hildebrand

No comments:

Post a Comment