mobile payment chatter... $AAPL

There have been two reports in about two weeks regarding Apple and mobile payments.

1. An e-wallet type of of web service

2. Cash transfer service (older, but made public recently)

Regardless of what these patents aim to do, the above chatter clearly has Apple thinking about mobile payments.

Apple has 500 million active accounts. 500 million users with a trigger finger that already produced $3.7Billion revenue for the quarter (at a year-over-year growth rate of +20%).

At the moment Apple  monetizes the 500 million users through:

1. iTunes Match

2. iCloud subscription

3. App/Software purchases

4. Rentals - Video/TV/Music

5. iBooks/Newsstand

(I would like to include accessories, $1.8B, in this mix, but I will exclude such revenue.)

Adding payments to the mix adds to the increased monetization capability of 500 million users. Increasing monetization through subscriptions and services. Not bad.


ps: Apple released a Map Search API for local searches. (Improved web services.)

Wonder the future... $FB

Facebook reported pretty solid mobile Ad numbers (along with the rest of the business), and continues to indicate the platform will be one of the best (if not the best) play for mobile ad monetization.

What I was really interested to hear more about was Facebook Graph and progress in search.  Zuck was pretty mum, but recent developments tell such an interesting story.

Over the last week Wonder came and went. Wonder is a natural language search, created by Yandex Labs, that utilized Facebook's existing APIs to produce a pretty nice social search app.

The app was short lived as it was pulled because it violated Facebook's terms.

The reason I mention this third party app is because if Yandex Labs can produce a fluid search function from Facebook APIs, then the probability is pretty high that Facebook will produce something very cool from Graph Search.  (Along with the obvious monetization coming from search.)

Ever since AMZN reported, I really don't know what to think about the current trading dynamic. The only thing I know is how I will trade.  This is support near 29. Ideally I would like to see Facebook decline to the 38SMA, and go heavy. But the results don't seem to merit a 17-18% decline.

After this period of consolidation, if the market players get all "Amazon" on this mofo, I am looking for FB to test 37.

(At 37, FB would be given about an $80B market cap. Doesn't seem unrealistic when considering the established growth potential. Along with the fact that the management specifically stated that the increase in 2013 operational costs is directly related to new product initiatives/hiring.  In other words, multiple catalysts.) 

Market Thought... it begins

The SP500 looks nice.

As the market keeps rising, looks like the new trading dynamic has begun.  The SP500, factoring in Q4 eps, has started to trade with a trailing multiple just above 15.  And so long as the SP500 keeps hugging the 5SMA, it should keep rising until it starts to test the monthly resistance.

The market should see a consolidation around the current levels. (Possibly around 1480.) If the employment numbers hold up, as the jobless claims suggests they will, the SP500 will break this resistance, and start trading with a trailing multiple above 15.

trades... $IBM, $BAC and $SU

IBM - There is so much beauty in IBM, but the prettiest part of it, at least for the current moment, is its ability to leverage a healthy financial engineering to maintain institutional interest (w/ consistent dividend increases) and increasing EPS with consistent buybacks, while maintaining a very nice free cash-flow.

Been waiting for a consolidation to get back into the name, since they reported. With VMWare disappointing this evening, an opportunity may arise. (Would love to enter between high 200/mid 202.)

BAC - A reversion to book value w/ a solid economy is at play. (Unlike Goldman, which is now an earnings story.)  Currently riding the weekly 9 SMA, but may hit the 50 SMA on the daily or a technical support near 11.

SU - The stock has been hovering around a long-term resistance.  Seems like it would like to breach it.

the settling... $AAPL

About 10 years ago I started my attempt to trade stocks. I started with about $1,000, and made it into a little over $3,000 in a few months.  I became addicted ever since. I became a market junkie, and a current-events whore.  Throughout those 10 years, there were two distinct trades that have been seared into memory due to the damaged they caused. As of Jan 23rd 2013, there is a third.

1. DNDN - mid May 2007

2. GOOG - 4rth quarter release 2010

3. AAPL - 1st quarter release 2013

DNDN was a very expense lesson in risk management.  GOOG was a kick-to-the-face to not be lazy. AAPL, I am still trying to piece together the lesson.  I got the reaction of the street so wrong, I haven't slept much since Tuesday. (Ever since my senior year in high school, I have dealt with insomnia.  I don't mind it. Lets me keep being somewhat more productive.)

Been re-playing my analysis and assessment over and over again.  The assessment included:

1. Product uptake - This is a continuous observation of the chatter to monitor product trends. Since the launch of the iPhone 5, all the data/chatter (viable chatter, not "some source" articles) suggested, and ultimately realized, a healthy uptake in the iPhone.  The iPad line sold very well.  The Mac supply issues were blatantly stated by Cook in the 3rd Q Conference Call.  The product uptake was decent. To deny the gain in global share for iPhone and strength of the iPad (9.7 and 7.9 inch) is disingenuous to the facts.

2. Flat EPS year-over-year - The comparison to last year was a known issue well before this quarter.  As such, I was not too surprised to see the trailing PE decline from 16 (in Oct) to 14.  (But from Dec to Jan, I was expecting the stock to chill around 560, not 500.)

3. Expectation of Negative Chatter - Planted stories usually hit the wire during times of quiet periods or lulls in product announcements. And since Apple just had a major product release cycle, I was expecting some level of negativity in December. I was not expecting the baseless articles to gain traction into January. (The period of negative chatter was longer than I anticipated, which helped keep the stock near 500.)

4. GM decline - A decline in GM was fairly obvious, and expected.  Last year during Q1 and Q2 fiscal quarters Apple benefited from huge declines in component costs. Margins were very very high.  The comparisons were known to be very rough. Again, adding to the justification to have a contracted PE from 16 to 13-14.

5. Street's perception - The street was at a heightened level of negativity thanks to high level of "component cut" sponsored stories.  The street was already factoring in the negativity due to AAPL's multiple already trading near historic lows. 

6. Technicals - While I was expecting the stock to channel trade in the mid 500 until they reported, they ended up channel trading at 500.  In fact the stock was acting relatively healthy, suggesting a bottoming w/higher lows. Up until the WSJ rumor release the Sunday before Jan 14th, which later remove the fictitious numbers it mentioned.

7. modeling - Because of the technicals, and the lack of pushing the multiple toward 12.5 in January, I ran a series of expectations to assume a miss in estimates and consensus. For instance, one of the assumptions was if Apple guided for around $10eps for the next quarter. That would suggest a trailing eps of 41. Slap a 11.5-to-12.5 trailing PE on 41, and that leads to a stock price of 477-to-492. (Yet AAPL is trading around 450.)

Due to Apple's position in the post PC era, and its huge cash generation potential, I certainly was not factoring a trailing PE below 11.3 (the low range).

Yet here we are.  After the report, and with the stock down, now uber bears want to call a company that had record sales and products sold, a "broken company". (Fuck, if this is the standard of broken, what the fuck is considered working?!?)

The real concerns for Apple are the following:

1. Improved UI (user interface) across its software

2. Improved web services (including iTunes, Apple Apps, Siri, etc)

3. A (more) unified iOS and OS X experience

4. Improve the iCloud experience so that it is a seamless file storage system. (For instance, if I have a file saved on my Mac Air, it would really be saved via iCloud, and I would be able to access that file via my iPad/iPhone. (For this to be seamless I think, #3 needs to be in place.)

There are many other nice-to-haves, but the above are the more critical aspects in order to shift with the evolution of mobile computing.  Back on October 29th, Tim Cook announced management reshuffling to better address the above needs. 

Aside from the decent quarter, the company has ALREADY positioned itself to embrace the needed evolution. Jon Ive working on UI, Eddy Cue on Apple's services, along with iOS and OS X under one roof via Craig Federighi (the trajectory here is obvious).  In fact, the only clarity we lack is how iCloud will evolve. (But I really do believe iCloud will be far different, and a productive tool, when iOS and OS X start to merge.)

A broken company? Far from it.

I obviously gauged the psyche of the market pretty poorly on Tuesday, and underestimated how severe the level of negativity would drive the stock. But the more and more I think about how I assessed the company and stock, I still do not think I would have traded any differently.

With the current sentiment, I really do not know what to think. Apple is already at stupidly low levels, most likely due to a superficial analysis perspective. And obvious sentiment can take the stock between the 350-425 level.

Where ever the stock goes is any one's guess cause of the poor sentiment. But there was some interesting intraday action, where the stock actually caught bids (around 12:30), and firmed up. (However, about a min before the close, there was some funny business.)

Curious as to who is stepping up? Could institutions be coming back or is Apple stepping up and loading up on their $10billion stock buy back?  Why wait three years to make the purchases, when so much can be bought now for such a low price.

build you up, to tear you down... $AAPL

What went wrong?

Pick a reason, any reason, and let it be so.  Ignoring the arbitrary opinions of the many, lets look at the numbers.

Q1 2013:

1. Revenues miss the consensus expectations by $300M.

Although Apple beat their own guidance by +2 Billion, for a company that just produced $54 BILLION in one quarter, that is a 0.5% miss. Which means a sneeze in the currency market could have caused it to "miss". Also:

-iMac sales were low, too low. Here were the real supply issues. This is an obvious factor that caused analysts to miss consensus revenue estimates.

-iPad mini constraints. If Apple was able to improve supply constraints on the iPad Mini (to which it is still constrained by a 1week shipping time), Apple would have beat on revenue.

Does this level of miss merit a 10% decline?

2. Product expectations.  Apple has been declining for the past 3 months due to vague, obviously bullshit, "factory order cuts".  Analysts started declining their expectations since the order cuts started to be made.  They then raised their iPhone expectations because the actual numbers from Verizon came in pretty strong.  The negative sentiment was already being factored in, and should not have had a big effect on earnings. (I liked how Cook called major media outlets idiots, in far more political terms, but idiots non-the-less.)

Whatever the twist to product expectations, record sales are record sales.  The numbers were decent. (Especially for a stock, prior to this report, trading at the very low-end of its trailing PE.)

3. Gross Margins were around expectations. Again, decent. (Especially for a stock, prior to this report, trading at the very low-end of its trailing PE.)

4. Beat earnings (eps) consensus estimates. Obviously good. (Especially for a stock, prior to this report, trading at the very low-end of its trailing PE.)

5. Next quarter expectations.  Apple obviously lowers expectations.  The consensus was $45billion, they lowered it to $41-43billion.  Around a 10% decline, but is it anything any Apple investor is not accustom to?

Apple introduced two new expectation management tools during the CC:

a. No eps guidance. 

b. Blatantly squashing the notion of "softball guidance" expectation. (I believe it was at this time the stock started to really break down.) 

Everyone already knew earnings in general were not going to keep growing at +85% clip.  And that EPS, from last year, was going to be flat. Wall street never rewarded that level of growth, and now wall street is punishing decent revenue growth. (But the stock, prior to this report, was trading at the very low-end of its trailing PE.)

Does a new level of expectation merit a $50 billion decline in market capitalization of a company that grew their cash position by $16billion?  Maybe, if the stock was trading near 600 prior to the report.

Whatever the reason, the stock declined and now we wait for price discovery, albeit painfully.  Where will the street get interested? Prior to after hours decline, Apple was already trading at that 'interest level'. Apple's low-end trailing multiple was around 11.5.  

Looking at the after hours decline (near 460), Apple has the following multiples:

Trailing PE: 10.45

Forward PE: 9.5 (assuming a 10% eps growth from 2012)

Cash position: $137.1billion

Cash per share: $144.7

Share price (ex cash): $315

Trailing PE (ex cash): 7.15 (eps of $44.1)

I am not expecting crazy growth, but I am expecting wall street to give credit where credit is due, and give Apple a proper multiple. (All considering their forefront position into the Post PC era.)

Apple may need to take a page from IBM's play book. Being so large, Apple needs to get more involved with healthy financial engineering.  I thought the dividend and buybacks announced last year would have been enough to maintain between 12.5 - 14. Since the stock is no longer being rewarded for its cash growth, Apple needs to put that cash to work. ($16 billion growth in cash! 16. Billion.)

$AAPL didn't give eps guidance

Interesting. Usually they give revenue and eps guidance in the press release, but they didn't give eps guidance this go around.

Last quarter their diluted share count was 948.1M. This quarter it was 947.2M.

Curious if the lack of guidance on eps suggests a heavier buy back this quarter?

More on the report later tonight.