This short post has more pertinent Apple analysis than a year's worth of Goldman's research. Don't believe me? Get some of the best Goldman research from the year and compare it, or better yet send it to me and I'll post it so we can all compare! In the meantime...
In February I opined on Apple's attempt to appease institutional investors in the post "Regarding A Potential Stock Split & Cash Dividend For Apple [9]". I am vehemently against Apple paying dividends or splitting its stock. Apple has witnessed a significant operating obstacle in front of it, and instead of attempting to navigate deftly around that obstacle, it is allowing itself to be distracted by non-operators (large investors, primarily hedge funds, who are eyeing its cash horde). Worry less about fancy cash repatriation schemes via debt issuance, cash dividends and stock splits and worry more on how to stem the tide of market share, technological capability and innovation loss relative to the extremely aggressive and capable Android powered competition. More importantly, focus on how to defeat the progenitor of Android, Google.
As excerpted from the afore-linked article:
Only short term thinking traders really want Apple to return cash, reference Apple, Big Hedge Fund Stars & The Sell Side/Vaudeville Act To Burn Your Hard Earned Money As A Punchline That's Just Not Funny [10]. Apple needs to put that cash horde to work aggressively, and quite quickly to build up its expertise and assets in the cloud, where it's sorely behind and in danger of never catching up. Apple also needs to significantly beef up its hardware and software in the portable device field. All three of these aspirations will hit margins, and Apple is seriously behind in all three aspects as well. For more on this, reference In Case The Mainstream Media Didn't Get The Memo, I Crush The Apple Reality Distortion Field On CNBC [11].
Giving cash to shareholders when you should be investing it yourself is an awful idea for the long term prominence of this company, whose days already appear to be quite numbered as a leading tech titan.
Now, to be honest, all tech titan's days are numbered, at least as a tech titan. Apple is currently and sorely outclassed in the tech features and capability race at the same time it has lost its iconic leader and competition has more than quintupled.
I rehash these points because as I fine tune our most recent Apple valuation model, incorporating the most recent quarterly results along with the bond offering details, I see some alarming developments that further my belief that Apple is no longer a growth company in spirit, in practice, and soon in growth rate, but has matured and is taking on the characteristics of a company who market has matured. The major problem with this is that Apple's market has NOT matured, and as a matter of fact, is still in the high growth stage. It is Apple management which has dropped the ball here, foregoing longer term opportunity to appease financial investors' shorter term desires. A very bad idea, and a devaluing event for longer term equity investors of Apple stock.
[12]Apple cash reinvestment
It is no surprise that Apple's margins are dropping uncontrollably for they can no longer differentiate their product enough to justify a premium. Notice hos the drop in margins track the drop of R&D/marketing, albeit with the requisite time lag.
[13]Apples margin free fall by Reggie Middleton on CNBC
This 15 minute video features all of the ins and outs of how Apple fell, why it fell, and how it can rise again.
Apple's management is in desperate need of a cloud infrastructure build-up and build-out. They also need a significant hardware and OS refresh. Without such, they will become RIMM'd, or shall I say Blackberry'd [14].
As you can in the app below, Apple's mobile product margins are all trending down, at the same time their market share and ASPs are downward trending as well. This sample is one page out of our ten section Apple valuation model, a model which I will make available to all professional and institutional subscribers next week, one updated with the latest quarterly results and the recent bond offering. You can subscribe here [15] to access this model, as well as Google's and Facebook's next week.
I've embedded the sample app that was used to create the charts above. It is apparently too complex to post here, but can be access about midway down the page on BoomBustBlog here [16].
Related articles:
Following up on Deconstructing The Most Accurate Apple Analysis Ever [18], I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...
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This report is still available for download to paying subscribers:
Apple 4Q2012 update professional & insitutional