.
It’s silly season again. The recent negative slant on press coverage of Apple has reached epic proportions.
Here are some examples from news reports over just a single day (last Thursday):
- MacRumors irresponsibly reported that the firm TrendForce concluded Mac notebook share dropped from 8.8% market share to 7.1% market share. But they based this by declaring: “MacBook, MacBook Air, and MacBook Pro sales totaled an estimated 2.53 million in the first quarter of the 2016 calendar year, down from an estimated 3.4 million in the year-ago quarter.” But this directly contradicts Apple’s reported sales in their recent quarterly results call: “Sales in March came in at 4-million units versus 4.6-million for the same quarter a year earlier. In mid-tier markets, [Apple CFO Luca] Maestri said the Mac actually saw double-digit growth. Even with the overall fall, he said they believe they still gained share in the PC space.” So how can a third party make an estimate that is dramatically lower than the Apple reported numbers?
- Investors Business Daily reported that Kore, a startup developing bots for enterprise platforms, wrote in a blog that Apple was doomed without bots. Really? A supplier of bots criticizing Apple for not using their product? That’s objective news? Hardly. In the article, Kore asserted that “Apple’s Siri is a question/answer bot. You ask it a question, it gives you an answer. End of discussion.” That is a huge understatement of what Siri already does, and suggests that Apple is not continuing to make improvements in Siri. That is a ridiculous observation and assertion.
- Digital Music News reported that “Apple terminating music downloads within 2 years” and “Apple is preparing to abandon music downloads.” Really? Apple was quick to offer a rare response: “Our response is that it is not true, we are not shutting down iTunes downloads per your story yesterday,” Apple media executive Tom Neumayr flatly told Digital Music News. Yet the original story quickly got picked up in scores of sites. Cutting off downloads would be akin to NetFlix’s premature abandonment of its DVD rental business in 2011 – a move that sent Netflix’s stock collapsing downward. Apple is smarter than that, since maintaining its downloads business takes little incremental investment or attention.
- Fed by this frenzy of negativity, Apple’s market cap slipped below Google’s for a few hours on Thursday, before moving back ahead of Google by the closing bell. Yet there were scores of articles with headlines like “Google Surpasses Apple as Most Valuable Company in the World”. Of course, when it flipped back and Apple was once again more valuable, there were (as far as I could find) no articles reporting that.
So how is Apple really doing? Here is some info that you’ll rarely find in a news article about Apple these days:
Apple
remains “insanely” profitable, to paraphrase a favorite term of Steve Jobs. While
profits have flattened out for the current fiscal year, net income is still
over $53 billion. For perspective,
consider the following:
- Apple’s $53 billion in net income is 40% of the combined profits of the 150 largest companies in Silicon Valley and bigger than the next six largest combined
- Apple’s $235 billion in revenue is 28% of the combined revenue of the 150 largest companies in Silicon Valley and bigger than the next four largest combined
- Apple’s $205 billion in cash is 31% of the combined cash of the 150 largest companies in Silicon Valley and bigger than the next five largest combined
- Apple’s $11.7 billion in dividends is 38% of the combined dividends of the 150 largest companies in Silicon Valley and bigger than the next five largest combined
- Apple’s $37.1 billion in stock repurchases is 40% of the combined stock repurchases of the 150 largest companies in Silicon Valley and bigger than the next twelve largest combined
- And for those that complain about Apple not paying its fair share of taxes, Apple’s $18.9 billion in taxes paid is 46% of the combined taxes paid by the 150 largest companies in Silicon Valley and bigger than the next eight largest combined
Here
is the data from a recent SiliconValley.com
article supporting the above comparisons:
Even
if Apple’s revenue growth stalls, their strong cash flow and aggressive stock
buyback program make it highly likely that earnings per share will continue to grow. Apple’s current
PE is 11 versus 23.6 for the S&P 500.
But adjusting for Apple’s $233 billion in cash, Apple’s PE is only 5 = ($495 B Market Cap - $233 B cash)/$53.7 B
Net Income. So while Apple’s glory days
of growth are likely over, it remains a cash machine that is grossly
undervalued.
It’s
time the media starts behaving more responsibly, and ends its embrace of the
negative spin. Apple deserves that no
more than it deserved the unrelenting positive spin cast on Apple during that
last years of Steve Jobs’ life. It’s time for media to act responsibly and
refrain from propagating outrageous stories without verifying the underlying assertions.
It’s
interesting that today’s “reality distortion field” is quite different than that
term often used to spin things positively during Jobs’ heyday. Realistically,
the media will continue to distort reality.
In the meantime, I expect the doomsayers will continue to have their
fun.
In
conclusion, as I write this Apple is hovering just above $90/share – a great time to
buy! It's especially timely as the
world figures out that the hundreds of unicorns that don’t make money are not
worth billions – in the next couple of years the market will move back to blessing
with higher valuations those companies that have solid businesses that make
lots of profit. And Apple is at the top of that list.
Disclosure: I have owned Apple
shares since 1985.
