Apple – Time to Move On

Just looking at the chart for Apple’s hardware trends into this quarter, you would not guess the stock to be up +8%. I get the 7 to 1 stock split allows it to be included in indices and retail hands, $30 billion increase to the stock repurchase plan (3 quarters worth of net income) and 8% dividend increase. But with revenue growth of only 5% YoY and YoY iPod units down -51%, iPad off -16% you would think the bottom line would be affected. However, Apple beat consensus estimates. Growth-rates-for-4-major-Apple-product-lines What is clear, 57% of revenues is dependent on iPhones with rev growth of 14% and 17% unit growth. Nevertheless, this 57% is under attack by multiple vendors, as is the tablet market which accounts for 16.7% of Apple’s revenues.

Before you think this is recommending a short, its not, rather its reinforcing the notion that Apple is a value play not a growth stock. I made money previously in 1986 watching the trend of Mac’s being covertly brought into corporate offices for DTP, the building of Mac culture, and 10 years later shorting the decline in Macs due to lack of software development for Macs, then buying again for the rebuilding of the Apple momentum in 2005 with rumors of entering the phone market. So whats left?

Yes Apple has other areas to branch out into and even the notion of software and services with iTunes (including the possibility of e-payments) as a backbone could be interesting. iTunes-Software-and-Services-split iTunes software and services is a $4 billion segment accounting for approximately 10% of Apple’s revenues which grew 11% in the quarter. But the trends are changing. Revenue-per-iTunes-account-1 While revenues per annual iTunes account is down, its still a solid business.

The point is that Apple is a value stock and should carry a commensurate valuation. Hence the stock is probably a safe haven with less downside ($520), but limited up side ($600) or 5%. Moreover with 823 analyst coverage, evolutionary product upgrade cycle and competitive pressure on 74% of its revenue base, positive alpha is less likely going forward versus simple beta exposure. There are better opportunities for growth play in the markets and within technology. Time to move on…

In this article I used the data from Jackdaw Research who did great work on the data.


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