Fiscal 4Q 2015 Final Estimates

As of today's market close of $111.58, AAPL now trades at a 10.4x multiple on my next-twelve-months EPS estimate (7.4x excluding next-12m cash and div).

Slightly revised FY16 rev/EPS down by ~2/3% mostly on Watch. Still plenty of upside in next year consensus rev/EPS growth of 5/7% (I'm at 11/17%), while market pricing in flat or lower EPS despite further buybacks.


Detailed estimates:

3mo ending Sep-2015  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    51,060          1.88
Apple guide low       49,000   38.5   1.72*
Apple guide high      51,000   39.5   1.89*
Deagol estimates      51,902   39.6   1.94 (5.72b shares)


3mo ending Dec-2015  Rev($M)  GM(%)   EPS($)
-------------------  -------  -----   ------
Analysts consensus    76,930           3.20
Apple guide low (e)   74,000   39.0    2.98*
Apple guide high(e)   78,000   40.0    3.29*
Deagol estimates      78,167   40.0    3.29 (5.68b shares)

*EPS guidance ranges derived from other figures provided
 by Apple and diluted shares outstanding estimated by me


12m ending Sep-2016  Rev($M)  EPS($)
-------------------  -------  ------
Analysts consensus   245,140   9.79
Deagol estimates     260,245  10.72

Fiscal 3Q 2015 Final Estimates

As of today's market close of $123.28, AAPL now trades at a 11.7x multiple on my next-twelve-months EPS estimate (8.7x excluding next-12m cash and div).

Apple better start guiding a bit more realistically or analysts will start adding 10% to top of range from the outset no matter what. Beating by 5% revenue is ok but going back to Peter Oppenheimer's 15% (and 30% EPS) average sand-bagging is dangerous. (Game of guidance chicken as Mav likes to say. Hey Mav!)


Detailed estimates:

3mo ending Jun-2015  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    48,970          1.78
Apple guide low       46,000   38.5   1.57*
Apple guide high      48,000   39.5   1.74*
Deagol estimates      51,249   40.3   1.95 (5.78b shares)


3mo ending Sep-2015  Rev($M)  GM(%)   EPS($)
-------------------  -------  -----   ------
Analysts consensus    50,990           1.86
Apple guide low (e)   49,000   38.5    1.70*
Apple guide high(e)   52,000   39.5    1.92*
Deagol estimates      52,801   40.3    1.97 (5.74b shares)

*EPS guidance ranges derived from other figures provided
 by Apple and diluted shares outstanding estimated by me


12m ending Sep-2016  Rev($M)  EPS($)
-------------------  -------  ------
Analysts consensus   245,420   9.74
Deagol estimates     266,246  11.02

Fiscal 2Q 2015 Final Estimates

As of today's market open of $125.57, AAPL now trades at a 12.7x multiple on my next-twelve-months EPS estimate (10.0x excluding cash and next-12m div).

Refined my Apple Watch estimates but it still involves significant uncertainty. Guessing 21.75m units for the next 12 months at an ASP of $575 driving revenue of $12.5b for its first year, not including $1b from additional bands, accessories and Apple Care. Should roughly double in second year.

Expecting a dividend raise to 53 cents (+13% from 47¢) quarterly, and extension of the share repurchase program to a total $140-150b by end of calendar 2016 (currently at $90b by end of 2015).


Detailed estimates:

3mo ending Mar-2015  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    55,760          2.14
Apple guide low       52,000   38.5   1.88*
Apple guide high      55,000   39.5   2.11*
Deagol estimates      56,155   40.3   2.22 (5.83b shares)

Fiscal 1Q 2015 Final Estimates

As of Friday's close of $105.99, AAPL is trading at a 12.5x multiple on my next-twelve-months EPS estimate (9.5x ex-cash).

I expect very strong results for Q1 with record-breaking net income of $15.7b, but guidance for Q2 may come in light (even at the top end) relative to expectations. Hope I'm wrong on that.

I'm estimating last quarter's revenue growth in the high teens (setting the tone for the whole 2015 Fiscal Year) as well as strong +39% gross margins, majorly driven by a high proportion of the iPhone user base upgrading to 6 and 6 Plus with unit sell-through growth estimated at 29/24/17% for Q1/Q2/FY15 (compared to 11/27/16% for Q3/Q4/FY14) and FY15 ASPs holding steady or slightly increasing despite FX headwinds early in the fiscal year.

I've finally (and very tentatively) modeled something for Apple Watch: as a base case (for now) I consider it a solid accessory for the iPhone and then strongly discount it by 25-35% (due to final product uncertainty and other unknowns such as pricing potential) which results in about 15% of compatible iPhone penetration (75m of 500m iPhone-5-and-higher user base after first 3 years).

Those saying Watch doesn't move the needle must not be looking beyond FY2015 at all, as in fact I model only 6.5m units for this fiscal year with shipments starting in the end of March contributing 1m units in the current quarter. Yet, my conservative base case already represents about 25% of the company-wide revenue growth in '16 and '17, getting to a modest $20b by then (somewhat slower than iPad which had the steepest revenue uptake of any Apple product, but this excludes additional wristbands and other Watch accessories which I model separately and even more tentatively). Again, it could easily be 2x that, considering the fast adoption of compatible iPhones and the customer base's high acquisition power.

Fiscal 4Q 2014 Final Estimates

As of Friday's close of $97.67, AAPL is trading at a 12.5x multiple on my next-twelve-months EPS estimate (9.6x ex-cash). A strong iPhone launch is providing some upside to my numbers, while iPad/Mac growth trajectory remains flat/moderate as expected (with Mac slightly better than iPad). We'll see in January if the new iPads can boost things a bit. Again, not modeling anything on Apple Watch at least until I have some more visibility, particularly on pricing.

Detailed estimates:

3mo ending Sep-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     39,850     1.31
Apple guide low        37,000     1.12*  37.0
Apple guide high       40,000     1.32*  38.0
Deagol estimates       40,800     1.38   38.5 (5.99b shares)


3mo ending Dec-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     63,520     2.40
Apple guide low (e)    59,000     2.18*  38.0
Apple guide high(e)    63,000     2.46*  39.0
Deagol estimates       64,344     2.55   39.4 (5.95b shares)

*EPS guidance range derived from other figures provided
 by Apple and diluted shares outstanding estimated by me.

Fiscal 3Q 2014 Final Estimates

As of Monday's close of $96.45 AAPL is trading at a 13.0x multiple on my next-twelve-months EPS estimate (9.8x ex-cash).

None of my estimates include any new product categories, but I do expect a new iPhone in late September and new iPads in November. Since I really doubt the market has decided to fully value Apple's current product lines as I project them (within my theory of 10x fwd EPS plus cash), it's clear that expectations about new categories for this year and next are somewhat baked into the current price. Keep this in mind as we get past the earnings report and rest of the year announcements.


Detailed estimates:

3mo ending Jun-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     37,860     1.22
Apple guide low        36,000     1.13e  37.0
Apple guide high       38,000     1.25e  38.0
Deagol estimates       38,755     1.33   38.7 (5.98b shares)


3mo ending Sep-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     40,650     1.34
Apple guide low (e)    38,000     1.28   37.5
Apple guide high(e)    40,000     1.41   38.5
Deagol estimates       41,763     1.51   38.7 (5.85b shares)


12m ending Sep-2015   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus    195,060     6.93
Deagol estimates      195,224     7.58

Fiscal 2Q 2014 Final Estimates

As of Friday's close of $519.61 AAPL is trading at 10.5 times my next-twelve-months EPS estimate (7.5x ex-cash). The biggest impact to my estimates for the quarter and rest of CY14 is due to China Mobile ramp much slower than I originally modeled in January. Taking guidance quite seriously now, thus estimating a significant drawdown in iPhone/iPad channel inventory (about 4.5m units) resulting in a $2.5b revenue impact, which prevents grossly exceeding the top range of guidance for last quarter. Expect management to highlight sell-through numbers.


Detailed estimates:

3mo ending Mar-2014   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     43,570    10.15
Apple guide low        42,000     9.46   37.0
Apple guide high       44,000    10.53   38.0
Deagol estimates       44,053    10.60   38.1 (884m shares)

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)

Fiscal 4Q 2013 Final Estimates

As of Friday's close of $525.96 AAPL is trading at 10.0 times my forward EPS estimate (7.4x ex-cash). Thanks to the new phones' successful launch and pricing confirming Apple's winning strategy, I'm finally able to revise numbers upwards. Potential guidance for the current quarter (Q1 FY 2014) looks very promising compared to WS consensus.

Detailed estimates:

3mo ending Sep-2013   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus     36,820     7.92
Deagol estimates       38,051     8.66 (902m shares)


3mo ending Dec-2013   Rev($M)   EPS($)   GM(%)
-------------------   -------   ------   -----
Analysts consensus     55,530    13.84
Apple guide lo (e)     57,000    14.25    37.0
Apple guide hi (e)     62,000    16.75    39.0
Deagol estimates       61,841    16.85    39.2 (882m shares)

Ridiculous Apple Dramedy

Dramatis Personae

Apple (AP.)

AnalCyst (ANL.)

TechXpert (TEX.)

Markaotic Chorus (MRKT.)

-----

Act 1, Scene 1

Stage: The street, some random web property. Any one of so many indistinguishable articles.

Fiscal 3Q 2013 Final Estimates

At around $424 AAPL is now trading at 9.1x my forward EPS estimate (5.9x ex-cash). These two quarters (June and September) really don't matter, but Apple better beat my revised long-term projections since I've set the bar quite low. I want to start revising numbers upwards from here on, for a change.

3mo ending Jun-2013   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance(mid)    34,500     7.13 (derived with 934m diluted shares)
Analysts consensus     35,090     7.31
Deagol estimates       36,186     7.70


3mo ending Sep-2013   Rev($M)   EPS($)
-------------------   -------   ------
Deagol estimates       39,690     9.30
Analysts consensus     37,550     8.08
Apple guide (est.)     37,500     8.62 (derived with 922m diluted shares)

Fiscal 2Q 2013 Final Estimates

At around $405 AAPL is now trading at 7.7x my forward EPS estimate (4.8x ex-cash). Apparently management will donate or literally burn all the cash, as the market refuses to value any of it. My (once again lowered) target still implies a doubling of the current price over the next 12-18 months.

Detailed estimates:

3mo ending Mar-2013   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance(mid)    42,000     9.74 (implied 947m diluted shares)
Analysts consensus     42,590    10.07
Deagol estimates       44,112    11.04


3mo ending Jun-2013   Rev($M)   EPS($)
-------------------   -------   ------
Deagol estimates       41,175    10.17
Analysts consensus     39,340     9.08
Apple guide (est.)     39,000     8.95 (implied 38% GM)

Much work ahead

Today, Apple essentially met conservative WS consensus estimates, but missed on almost every single product when compared to my estimates, resulting in an overshoot of roughly 10% in EPS. If that weren't enough, Apple has now reclassified the operating segments (Greater China representing 12.5% of total revenues during last quarter has split out of Asia/Pacific) and product revenue breakdown (merged iTunes with Software and Services, and Accessories previously included but not broken out within their respective product line are all now mixed with Peripherals) all of this starting last quarter and historically for only the last couple of years. Needless to say, both issues (yet another "transitional" shortfall and product/segment reporting shifts) will be a pain to reconcile in my model. Not nice, Apple. However, after I get it all clicking once again, it may result in a slightly simpler model.

Main highlights:

iPhone units came in at 47.8m vs. my expected 53m (I was 10.9% too high)
iPad units at 22.9m vs. my 25m forecast (9.4% too high)
Mac units at 4.06m vs. my 5.18m (a whopping 27.5% too high)
iPod units at 12.7m vs. my 14m (10.4% too high)
iTunes/Software/Services revenue of $3.7b vs. my $3.5b (6% too low)
Newly combined Peripheral/Accessories revenue of $1.8b can't be compared to my published forecasts.

Recognized hardware revenues and ASPs by product are not comparable to my forecasts, except perhaps for the Mac (revenue of $5.5b vs. my $6.9b forecast which was 24.7% too high, and Mac ASP at $1,359 vs. my $1,329 estimated which was 2.2% too low). However, even after shedding the accessories contribution, all ASPs still came out higher than modeled (with accessories) which suggests a more favorable mix than expected.

Total revenue was $54.5b vs. my $58.6b forecasted (7.5% too high)
GM% was 38.6% vs. my 39.5% forecast (84bps too high)
Diluted EPS of $13.81 vs. my 15.20 estimate (10.1% too high)

Cash per share is at $145 vs. $140 estimated, meaning I need to puzzle out yet another detail.

Trailing valuation (10x ttm EPS + cash + ttm divds) is now $441+145+5=$591. The forward projections will have to wait for the reformulation in terms of the reclassified revenue sources, and a thorough reexamination of all the longer term assumptions.

Apologies for getting it wrong once again.

Fiscal 1Q 2013 Final Estimates

As of Tuesday's closing price of $485.92, AAPL is trading at 8.3x my forward EPS estimate (5.9x ex-cash). This extremely low forward valuation is similar to that of mid 2011, when it traded in the mid $300s ahead of $44 EPS for FY2012 and mid $80s in cash per share at the time. The stock ended up doubling a year later. Interestingly, my (lowered) target now implies a doubling of the current price over the next 12-18 months.

Detailed estimates:

3mo ending Dec-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         52,000    11.75
Analysts consensus     54,580    13.34
Deagol estimates       58,601    15.20


3mo ending Mar-2013   Rev($M)   EPS($)
-------------------   -------   ------
Deagol estimates       49,452    12.89
Analysts consensus     46,890    12.10
Apple guide (est.)     44,000     9.75

Revised: Fiscal 4Q 2012 Final Estimates

I'm not a fan of revising estimates the day before the report. However, this time Apple has essentially pre-anounced the iPad number and everyone will post their revisions, so I might as well get on with it. In addition to the more than four million iPad units shortfall, I'm revising the Mac estimate lower by half a million units mainly on an inventory drawdown and, to a lesser extent, widespread reports of PC market weakness.

These changes result in about $3 billion lower revenue and $0.80 lower EPS for the quarter. The gross margin percent goes up about 70 basis points on the higher iPhone mix.

Additionally, I took this opportunity to tweak the longer-term projections to account for the new products introduced yesterday. Here are the usual details:

3mo ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     7.65
Analysts consensus     35,800     8.75
Deagol estimates       36,063     9.68

Long-term Apple Segmented Revenue Visualizations and Projections

Two years ago I made the rather conservative (but somehow controversial back then) prediction that by this last quarter just ended in September and about to be reported next week, the iPad would have passed the Mac in trailing-twelve-months revenue. That post also included a far-reaching projection into the future for all product lines, as well as some specific estimates for FY2011.

As it turned out, iPad revenue has in fact already exceeded Mac revenue on a trailing-twelve-months basis but by the first quarter (Jan) of this fiscal year (at least I got the year right): for calendar 2011 the iPad logged in revenues of $24.9b while the Mac only managed $23b. Regarding the other specific predictions for FY11, I was slightly high for iPod revenue ($8.0b vs. $7.5b actual), iTunes ($6.5b vs. $6.3b actual), and Software ($3.2b vs. $3.0b actual). I came up way, way short on iPhone ($32.7b vs. $47.1b actual) and iPad ($18.0b vs. $20.4b actual), and a tad short on Mac ($21.0b vs. $21.8b actual) and Peripherals ($2.2b vs. $2.3b actual).

About the very long-term projection (shaded hazy part), a careful study of the chart shows some considerable differences, which I'll leave up to the reader to compare visually. Here's the update now with the FY2013 predictions (click on all charts to enlarge even more):

Fiscal 4Q 2012 Final Estimates [Updated 10/24]

[10/24 UPDATE: In light of information revealed during the October 23 event and, to a lesser extent, widely reported PC industry weakness, I'm revising iPad and Mac estimates for Q4. I now estimate 4m fewer iPads and 0.5m fewer Macs (mainly inventory drawdowns) results in about $3b less revenue and $0.80 lower EPS. Gross margin percent goes up about 70 bps due to mix. I'll be posting a detailed revision later today (here).]

As of Tuesday's closing price of $661.31, AAPL is trading at a 10.1 multiple on my forward EPS estimate (8.1x ex-cash). Valuation remains attractive despite the 9.1% increase in share price and downward revenue/EPS estimate revisions for FY13 of 8.7/10.4% over the last 3 months.

Detailed estimates below:

3mo ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     7.65
Analysts consensus     36,270     8.88
Deagol estimates       39,136    10.48

What is Apple Worth? Part 1: Regarding Large Numbers

A Big Lottery

“Peter tosses a coin and continues to do so until it should land "heads" when it comes to the ground. He agrees to give Paul one ducat if he gets "heads" on the very first throw, two ducats if he gets it on the second, four if on the third, eight if on the fourth, and so on, so that with each additional throw the number of ducats he must pay is doubled. Suppose we seek to determine the value of Paul's expectation.”

This is how Daniel Bernoulli rephrased a problem nagging a tight circle of mathematicians almost 300 years ago. The issue is that, if you go by the mathematical expected value of the winnings you end up with an infinite value for the lottery: you have 1/2 probability of winning one ducat on the first throw, 1/4 probability of winning two ducats in 2 throws (which adds another 1/2 to the expected value), 1/8 probability of winning 4 ducats in 3 throws (adding another 1/2), and so on adding 1/2 a ducat in value an infinite number of times.

The expected value suggests that a player should be willing to pay any amount asked for a chance to play this lottery. Yet, in real life no one in their right sense would pay more than a few ducats to play this, perhaps somewhere around 5 ducats. Why is it that the mathematical expected value doesn’t reflect the real value placed by real players on this lottery?

Fiscal 3Q 2012 Final Estimates

As of Friday's closing price of $605.88, AAPL is trading at a 8.9 multiple on my forward EPS estimate (7.0x ex-cash). For guidance and forward-looking valuation I'm assuming an iPhone launch in September (which paradoxically is the conservative view for the long term). This implies about 6m units shifted into this fiscal year instead of next, and affects the replacement cycle timing well into 2014. Still, I'm including estimates for the October launch scenario below so you can pick your own.

Detailed estimates below:

3mo ending Jun-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     8.68
Analysts consensus     37,370    10.34
Deagol estimates       40,641    12.16

Fiscal 2Q 2012 Final Estimates

At today's closing price of $628.44, AAPL is trading at a 10.4 multiple on my forward EPS (8.5x ex-cash).

The valuation metrics provided below are intended to track the market price of the shares at the given timeframes, and thus exclude any dividend paid up to that point in time because the dividend is subtracted from the cash balance, as it should. However, because my underlying theory is that shares should be (roughly) valued on a forward-one-year basis, to compensate for this one needs to add back into the value the next 12-months worth of dividends.

For example, the current fair value is based on 10 times the EPS estimate of $60.39 for the next 12 months which gives $604, plus the estimated cash balance at the end of the next 12 months of $165/sh (which already excludes any dividends paid over that period), and adding back the $8 worth of dividends paid over the next 12 months which a buyer today would in fact be entitled to, resulting in a $777 fair value. The one-year target is computed similarly given the annual EPS, dividends and cash balance for the 12 months ending 2 years from now.

I consider the "trailing" metric relevant for the past 3 to next 3 months, the "fair value" metric relevant for roughly the next 3 to 9 months, and the "1yr target" metric relevant for roughly the next 12-18 months. Of course this is all my own subjective/empirical sense.