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Wednesday, July 24, 2013

$aapl - highlights

Or at least what I thought were highlights from the quarter:

1. Buybacks

~23 million shares were removed from the float. Another 11 million will be recognized in the next quarter. They have been busy buying a lot of shares. Seems like the purchases are lopsided, and without consistency, but they are happening.

Apple announced the massive increase in buyback at the end of Q2. Three months later the diluted share count went from 947M to 924M. (And on the conference call the CFO indicated another 11M will be recognized in Q4. The diluted share count in Q4 should be around 913M, excluding additional purchases.)

They are being very aggressive. Judging by the action in the quarter, the repurchases do not seem to be consistent. Or become very aggressive at certain levels. (A case could of been made at 420 and below 400.)

Biggest takeaway, the aggressiveness is a clear message to the institutional players that Apple will support the stock.

2. Better management of the stock

Apple beat the street estimate, and were very clear on certain weaknesses. (ie iPad declines due to channel in inventory declines, Hong Kong declines etc.)

First quarter of firming perception, since Q4 2012, from management after announcing "more realistic guidance".

3. Falling ASP for the iphone

The iPhone has consistently had an average selling price above $600 for about 5 years. Now the mix has shifted. While growing at 20% y/y, more customers chose the iPhone 4 and 4S to bring down the ASP. (Yet overall margins remained fairly robust at 36.9%.)

This new customer mix can be viewed as potential new upgrades, and expect margins to benefit in a year or so. Or these new customers will never care about 'premium' or the-better-phone, and might as well start addressing them.

4. Services

iTunes/Software/Services continues to grow at a better-than-healthy clip of 25% y/y.

Still think this is one of the most under-rated stories of Apple. All this growth without very little credit. But who knows, maybe with the recent purchases of Locationary and HopStop, Apple Maps will gain a new perception, actually cause a decline in Google Maps use, and the street will give Apple some well deserved respect for "web services".  (On a side note, iWork via the web browser: awesome.)


We already knew a slow down in revenue was coming. We already knew margins were coming down from last years +40%. But we are witnessing Apple improve 'perceived' deficiencies while maintaining leadership in their core skill set.

With a better management of the stock, aggressive buyback in place and a relatively high dividend there is no excuse for Apple to trade with a lower multiple to companies with fundamental issues, like MSFT.  

After all the fancy charts and analysis, a stock is simply a function of supply and demand. The more demand, the valuation metrics go up, and vice versa.  Its just a shame the vast majority of institutional money, the guys that control the PEs of stocks, do not understand the differences between MSFT, GOOG and AAPL.  Case in point: Julian Roberston. Really smart guy, but lacks the subtle knowledge that truly differentiates Google, Apple and other tech companies.

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