Tuesday, January 14, 2014

Fiscal 1Q 2014 Final Estimates

As of today's close of $546.39 AAPL is trading at 10.2 times my next-twelve-months EPS estimate (7.5x ex-cash). The China Mobile deal allows me to continue to revise upwards, particularly beyond this year which is reflected in continued double-digit annual EPS growth for the next three calendar years. However, I've toned down iPhone margins a bit for FY14.

Detailed estimates:

3mo ending Dec-2013   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus     57,380    14.07
Deagol estimates       59,005    14.92 (895m shares)

3mo ending Mar-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     45,750    10.86
Apple guide lo (e)     47,000    11.45    37.0
Apple guide hi (e)     51,000    13.05    38.0
Deagol estimates       51,585    13.22    37.8 (875m shares)

12m ending Sep-2014   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus    184,650    43.71
Deagol estimates      200,242    50.97

Valuation (12mo ending on)   EPS($)  Y/Y  10x  Cash* Div   Tot
--------------------------   ------  ---  ---  ----  ---  ----
Trailing        (Dec-2013)    40.73  -8%  407   146   12   565
Fair value      (Dec-2014)    53.73  32%  537   166   14   717
1yr target      (Dec-2015)    62.25  16%  622   210   17   849

* Cash balance net of long-term debt

F1Q14 Revenue breakdown (millions, except ASPs):
Mac        5,893 ( 4,650 × $1,267)
iPod       1,409 ( 9,000 × $157)
iPhone    34,145 (56,000 × $610)
iPad      11,405 (25,500 × $447)
iT/S/S     4,317
Accssr     1,836

Income statement (millions, except EPS):
Revenue   59,005
COGS      36,719
GM        22,286
OpEx       4,434
OpInc     17,852
OI&E         238
Pre-tax   18,090
Tax        4,749
NetInc    13,342
Shrs.        895
EPS       $14.92

GM%        37.8%
OpInc%     30.3%
Tax%       26.3%
NetInc%    22.6%


Sfbikeguy said...

Have not looked into it yet, but is it possible to model a separate revenue stream for the revenue recognized from the deferred revenue on the balance sheet? Seems like this is going to be getting larger for the next year+. Also, are the ASPs in the model net of the deferral?

As always, thanks for sharing your model.


Daniel Tello said...

M, it is possible but quite a headache. Different devices sold at different times have different deferral rules, some mixed within the same single quarter sales, so estimates of this mix would be required. It's not as big an effect as when ALL of the device's value would get deferred a few years ago. Now it's just $15 to $25 for iPads and iPhones and $40 for Macs, or a bit over 3% of each device's sales value. And since growth has now slowed to a moderate rate the recognition from prior periods mitigates most of the impact.

The ASPs in the model reflect my best educated guess at all this, i.e. those are after any applicable deferrals and recognitions.

Jzou said...

Your iPhone number for dec qtr seems low. Consider China is among iPhone 5s and 5c launch countries, but not iPhone 5 in 2012, 16% yoy growth seems low! what gives?

Daniel Tello said...

China launched near EoQ last year and it was a big boost. And I don't need to veer further away from guidance. Apple seems to have gotten serious about not sandbagging.

Anonymous said...

Last Q, TC advised ahead of earnings that he expects it to be in high end of guidance range. This Q, he did not. Also to consider is the high valuation of USD and whether this may buffer down earnings a bit. Yet, you are estimating above guidance. I am not sure if you took into account these issues.

Daniel Tello said...

Anon, they've come above the top of the guidance range several times before (perhaps even most times if memory serves right) wihout any preannouncement like the one for last report. That SEC filing was quite puzzling to me, saying they'd come near the top of the range, thus still validating the original range. It seemed unnecessary and redundant. So yes, I'm ignoring the non-preannouncment factor.

About the US dollar, in fact the average for the dollar over the whole Oct-Dec quarter was lower than the average over the Jul-Sep quarter (down about 1.8% if you go by the $USD index). Even more so, the peak sales volume period in mid-Dec saw the $USD index trading about 2.4% below the Jul-Sep average. This has been reflected in a very slight tailwind to ASPs and margins, and a lower OI&E amount due to the currency hedges probably expiring without value.

Anonymous said...

Perhaps asp of ipads will be higher: mini priced higher, demand shifting to air, and some reported that big mem models have been more popular.
Consequently, gross margin may cross the 38% threshold. 15.4 eps here, although still worried about lack of update.

Anonymous said...

What do you think of the reported low turnout for the iphone 5s launch at China Mobile today - SS

Daniel Tello said...

I think those reports are pure donkey poop. See my tweets today (right here on the right panel if you wish) about the incredibly nonfactual NYT article today. Check PED's unbiased report, and don't miss Jahangir Naina (@jnania) great photo compilation of the launch from all over China.

Please, don't get duped from reading any single mainstream media article about Apple. Always, always, do your own homework. And don't take my word for it either. Just be smart and come to your own conclusions when reading anything out there. The stories are almost always fabricated, manipulated, or at best, strongly biased. The exceptions are few and far between.


Daniel Tello said...

Here's the photo compilation courtesy of @jnania


Anonymous said...

I actually did sketch out a deferral model, but it's based on best-guesses since Oppenheimer got intentionally fuzzy about deferrals for software upgrade rights somewhere along the way.

Anyway, my conclusion from the deferrals plus amortization is pretty straightforward - as long as Apple continues to grow units YOY, amortization will never fully catch up and result in a "net increase" in recognized revenue/gross margin.

A net "gain" may have resulted once or twice for iPhone (deferrals as reduced by amortization "add-back") but it's doubtful it ever made a material difference, certainly not in full-fiscal-year terms.

But the more WS gets used to it, the less of a factor it'll be sentiment-wise. Sort of like how WS groks Google's TAC, etc.

Anonymous said...

I think the accessories line might be very low. Read a report that 70% of buyers of iPhones and iPads bought covers or cases (this figure may have referred to Apple Stores only). Last year Apple had little to offer in iPhone cases, or even chargers, in the first couple of months in the quarter. These (Apple made) accessories carry margins in the 80% and higher range. Could put the quarter over 38% GM, and over $60b revenue.

Sfbikeguy said...

At the two minute mark of the call, AAPL calls out a $2.5BB deferral related to the higher iOS and Mac revenue deferrals. That's a big number. See my Comment #1.


Daniel Tello said...

SFbikeguy, here's the full quote from early in the call:

“…foreign exchange headwinds, the year-over-year decline in iPod sales and the higher revenue deferral rates from iOS devices and Mac that we discussed last quarter. These three factors negatively impacted revenue by about $2.5 billion and without them our year-over-year revenue growth would have been about 10%.”

Notice there are three factors mentioned, so the deferal impact is much less than $2.5bin Q1. From the previous call they estimated there would be about $900m higher deferrals in Q1 compared to Q4, part of which was already expected under the previous deferral scheme due to the higher unit volume in Q1.