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Monday, January 27, 2014

$aapl - okay numbers, dumb selloff

Revenue, gross margins and eps came in better than expected.  Guidance came in below analysts expectations.  On the high side, Apple projected $44B vs $46, which would suggest an eps of $10.35 vs $10.93. (I was expecting a higher gross margin, slightly higher revenue and around mid $11 eps for Q2.) Despite the dissapointment, eps will still be higher this year vs last year Q2.

Margins appear to have stabilized.

Cash continues to grow. Nice little bump.

Revenue and earnings are basically flat, but cash is still growing. Despite the increased cash position, and the aptitude to do big buy backs, the market currently only seems to care about revenue growth. The bottomline be damned. That will come 'later'. (Amazon and Google are good examples of this.)

The big money question rests on the multiple. What multiple will the market allow Apple to have despite the stability of products, ecosystem and services. Google and Amazon allow the markets to fantasize about "trillion dollar" markets, and the idea is backed-up by continued revenue growth. The current market rewards the idea with awesomely high multiples. (Although Amazon has a more comprehensive strategy, and given the poorer quality of revenue growth coming from Google, I would prefer Amazon.)  

Apple has the ability to wet-the-fantasy, but it chooses not to. Instead the market players are left to ponder the next idea. The possabilities include:

1. iBeacon - They already incorporated iBeacon into all their hardware. This gets people excited about internet-of-thing, automated payments, device-to-device interactions that can literally replace a huge number of routine mundane tasks.

2. TouchID - Additional ID security measures adding a layer of protection at a time where there is a heavy mistrust with where certain information resides. Plenty of speculation around a payment system. (Adding fuel to the fire are the multiple patents within the mobile payments space.

3. AppleTV - We were teased with the Jobs book about Apple figuring out TV, but two years later and we are still waiting for Apple to reveal how they figured it out. iTunes Radio gives us a glimpse as to the model.

There is no doubt in my mind that Apple's understanding of consumers, their cohesive ecosystem and thoughtful hardware design (functionally and cosmetic) give them the edge within the internet-of-thing era.

Ever since the iPhone launched, the street has made Apple a show-me story. Apple has sold over 77 million personal computers in one quarter. What will they release in 2014 that will compliment the new personal computer hub? When will they better position for the living room, and AppleTV stops being a hobby? 

With little fantasy, and low revenue growth, the multiple will remain depressed. Despite the fact that the multiple is already depressed, afterhours already suggests mid to low 12 is a given. Not expecting a breach of this level because eps are more stabile right now vs last year.

An 8% decline with decent numbers seems a bit much. (This decline makes more sense if the quarter's numbers were released if aapl had a multiple near 16-17.) Regardless, my task is to take advantage of market action.  Market sentiment may take the stock to weekly and monthly supports near 480. (The 38sma on the weekly and the 10 sma on the monthly.)

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