So far I have been sending this by email to friends but there were more requests for the emails and so I am doing it on a blog this time. However the spirit is still same, it is intended for people I know who have invested in AAPL and are interested in shareholder view points.
If I make predictions or voice opinions they are primarily meant for placing a dollar value on AAPL.
We had two events yesterday and today.
1. Apple Watch/MacBook event.
2. Shareholders annual meeting.
Couple of dates:
Apr 10 - pre orders begin for the Watch. New Macbook available.
Apr 24 - Watch arrives.
We should see some price swings around these days when market sees confirmation.
Before I jump in with the details of the events, here is a DCF calculation I did.
https://www.icloud.com/numbers/AwBWCAESEEmkJadEVFWsA-Aqh7JEhr4aKpyCE399D_DbWtWTkmaTfqK_CKgrHNI20HduO3acWyoxQQ8q6-nZAVNubgMCUCAQEEIGn0zRvTQITggkDYuc3YhiwffRpqXhYyvOPFJ3lv84Ak#Apple_DCF_valuation
First I did a DCF with simple assumptions such as 10% growth this year followed by a lull and then 3% every year after five years and used a discount rate (think of it as bank interest rate) of 5%. I was surprised to see price of $200. That is quite close to the $216 Carl Ichan came out with. Well the market is not stupid so I tried to find out what the market thinks prospects of AAPL are and tweaked untill I got close to the current value. I increased the discount rate to 8% - I will be really happy if I can hit this rate without risk - to get to $120. So even with a pessimistic outlook AAPL is a reasonable stock to hold.
I am going to cash out 25% for immediate needs but I intend to hold unless we find a different stock with better numbers and upside.
To the Events, easy one first:
1. Shareholders meeting.
This time it started at 9:00 and went on till 10:15, so I had time to make it back to 10:30 scrum!
Mr. Cook sounded like he is in control of things. First we voted, there was a group who claimed Apple was reckless in building Solr power stations. 98% voted against it and there were laughs. It shows how much support Apple board and Executives enjoy from shareholders. There was one group who wanted changes to how proposals are introduced - basically small fish like can introduce proposals. CALPERS group said it is moot and it lost with 60% vote against it. Rest all were passed with high majority.
Then Mr. Cook spoke about how Apple is not all about ROI but also about leaving world better than it found. It kind of rattled some people because we are in it for the ROI. But nothing to alarm, They are not throwing cash away. One example is Research Kit (for health research), Apple makes no money on it, and it is open sourced. I do think it does bring some money to Apple but it is easy to believe he means to be genuine. He spoke about products introduced since last meeting and they seemed like old news.
In the QA, there were two interesting topics. Two shareholders asked about buying Tesla. But he gave non-answers and admitted that he is skirting the question and kept repeating Tesla should adopt CarPlay! It was a bit funny. There was lot of talk about diversity.
On to the next event..
2. Apple Watch - Spring forward.
Ncie name and timing.
I have one disappointment - battery life is only 18 hours, I was hoping for a week, can't expect miracles, they are only human and limited by same laws of physics.
One nice thing I found was that using Apple Pay is not so clumsy as I thought on the watch. You double click the small button and then raise just one hand, no awkward movements. Still there are so many questions around the product. I may have to get one of them to really understand it.
The reviews say it does not have a killer feature and it is confusing to use, I can't side with those reviews though. I do think notifications and the freedom to leave the phone where it is, is something we have all been wanting to do - we were tired of it for some time. Will we put up with daily charging (and some money out of bank) for this convenience? We will know in a few quarters.
Watch has potential for many upgrade cycles.
The pricing looks right. 10k price looks steep but as a PC mag article points out some people spend this kind of money on first class flights. For that market it is just one more flight cost. I am subsidizing their iPhone iteration cost, I would like them to pay for the iterations of the watch - as a fellow consumer.
Presentation was better than last time. I liked the model from 'Every mother counts' very clever marketing. It would be even better marketing if Mr. Cook ran a marathon and gave some of the credit to the watch - likely in my view. Even better if presenters get in shape for next event and give the credit to the watch - long shot.
MacBook was a pleasant surprise. The force touch plus taptic engine under the trackpad can open many possibilities for gaming applications. The Air was a great success and this new product is taking it one notch up. Many questions about why they left the rest of the line as it is. Will take some time to understand their strategy. If I am in the market for a notebook now, I would buy it.
HBO Now, and drop in Apple TV price are good moves.
3. Other notes and thoughts since my previous emails.
Inflation: We have not talked about it before. It has been 8 years since the first iPhone. The value of $650 then is more than $650 now, at 4% inflation it would be $889. Well iPhone is not so novel anymore, a bit commoditized by competition, not fully though - think touchID, better privacy. So the price should be in between. Apple demonstrated it very clearly by increasing the average selling price of the iPhone 6/6 plus by using higher memory gap and larger phone option. For some Apple consumers money is easy to come but not all consumers are like that and have tight budgets. So the inflation angle is important.
International cash: Apple did a good job hedging currency. Microsoft lost revenues but Apple came out unscathed! Mr. Masteri has done a great job. It looks like we are going to get the money home with a simple tax.
Momentum: Money managers are always under pressure to beat the index and AAPL is the winning stock on the index so they need to cover their contrived short positions like Ichan said. Recent movement could be due to this.
India: In previous earnings call Mr. Cook said India is a tough nut to crack saying it has many 'layers'. In the last ER call he said it is possible a China like scenario can playout in India! Looks like he is seeing a path to success there. (I have not added this in my DCF calculations though - very conservative - another upside poetential).
Camera patents: I came across a nice Apple patent, a periscope camera. This allows them to put a much better camera in a small form factor. Lots of scope to improve the camera and bring in some SLR like zoom features.
Apple Car: Poaching of employees from Tesla and A123 and the way Mr. Cook avoided the questions today indicates they are doing something in the space. However I would think it will too lame if they tried to do the same thing Tesla is doing today. They better do the self driving car or find a nice trade off product that can meet it half way paving the way to a mature product in a few cycles.
Health market: I am still hopeful they will add some value in this 3 trillion industry and take a cut in it. I am glad they are not doing Google style data collection.
If I make predictions or voice opinions they are primarily meant for placing a dollar value on AAPL.
We had two events yesterday and today.
1. Apple Watch/MacBook event.
2. Shareholders annual meeting.
Couple of dates:
Apr 10 - pre orders begin for the Watch. New Macbook available.
Apr 24 - Watch arrives.
We should see some price swings around these days when market sees confirmation.
Before I jump in with the details of the events, here is a DCF calculation I did.
https://www.icloud.com/numbers/AwBWCAESEEmkJadEVFWsA-Aqh7JEhr4aKpyCE399D_DbWtWTkmaTfqK_CKgrHNI20HduO3acWyoxQQ8q6-nZAVNubgMCUCAQEEIGn0zRvTQITggkDYuc3YhiwffRpqXhYyvOPFJ3lv84Ak#Apple_DCF_valuation
First I did a DCF with simple assumptions such as 10% growth this year followed by a lull and then 3% every year after five years and used a discount rate (think of it as bank interest rate) of 5%. I was surprised to see price of $200. That is quite close to the $216 Carl Ichan came out with. Well the market is not stupid so I tried to find out what the market thinks prospects of AAPL are and tweaked untill I got close to the current value. I increased the discount rate to 8% - I will be really happy if I can hit this rate without risk - to get to $120. So even with a pessimistic outlook AAPL is a reasonable stock to hold.
I am going to cash out 25% for immediate needs but I intend to hold unless we find a different stock with better numbers and upside.
To the Events, easy one first:
1. Shareholders meeting.
This time it started at 9:00 and went on till 10:15, so I had time to make it back to 10:30 scrum!
Mr. Cook sounded like he is in control of things. First we voted, there was a group who claimed Apple was reckless in building Solr power stations. 98% voted against it and there were laughs. It shows how much support Apple board and Executives enjoy from shareholders. There was one group who wanted changes to how proposals are introduced - basically small fish like can introduce proposals. CALPERS group said it is moot and it lost with 60% vote against it. Rest all were passed with high majority.
Then Mr. Cook spoke about how Apple is not all about ROI but also about leaving world better than it found. It kind of rattled some people because we are in it for the ROI. But nothing to alarm, They are not throwing cash away. One example is Research Kit (for health research), Apple makes no money on it, and it is open sourced. I do think it does bring some money to Apple but it is easy to believe he means to be genuine. He spoke about products introduced since last meeting and they seemed like old news.
In the QA, there were two interesting topics. Two shareholders asked about buying Tesla. But he gave non-answers and admitted that he is skirting the question and kept repeating Tesla should adopt CarPlay! It was a bit funny. There was lot of talk about diversity.
On to the next event..
2. Apple Watch - Spring forward.
Ncie name and timing.
I have one disappointment - battery life is only 18 hours, I was hoping for a week, can't expect miracles, they are only human and limited by same laws of physics.
One nice thing I found was that using Apple Pay is not so clumsy as I thought on the watch. You double click the small button and then raise just one hand, no awkward movements. Still there are so many questions around the product. I may have to get one of them to really understand it.
The reviews say it does not have a killer feature and it is confusing to use, I can't side with those reviews though. I do think notifications and the freedom to leave the phone where it is, is something we have all been wanting to do - we were tired of it for some time. Will we put up with daily charging (and some money out of bank) for this convenience? We will know in a few quarters.
Watch has potential for many upgrade cycles.
The pricing looks right. 10k price looks steep but as a PC mag article points out some people spend this kind of money on first class flights. For that market it is just one more flight cost. I am subsidizing their iPhone iteration cost, I would like them to pay for the iterations of the watch - as a fellow consumer.
Presentation was better than last time. I liked the model from 'Every mother counts' very clever marketing. It would be even better marketing if Mr. Cook ran a marathon and gave some of the credit to the watch - likely in my view. Even better if presenters get in shape for next event and give the credit to the watch - long shot.
MacBook was a pleasant surprise. The force touch plus taptic engine under the trackpad can open many possibilities for gaming applications. The Air was a great success and this new product is taking it one notch up. Many questions about why they left the rest of the line as it is. Will take some time to understand their strategy. If I am in the market for a notebook now, I would buy it.
HBO Now, and drop in Apple TV price are good moves.
3. Other notes and thoughts since my previous emails.
Inflation: We have not talked about it before. It has been 8 years since the first iPhone. The value of $650 then is more than $650 now, at 4% inflation it would be $889. Well iPhone is not so novel anymore, a bit commoditized by competition, not fully though - think touchID, better privacy. So the price should be in between. Apple demonstrated it very clearly by increasing the average selling price of the iPhone 6/6 plus by using higher memory gap and larger phone option. For some Apple consumers money is easy to come but not all consumers are like that and have tight budgets. So the inflation angle is important.
International cash: Apple did a good job hedging currency. Microsoft lost revenues but Apple came out unscathed! Mr. Masteri has done a great job. It looks like we are going to get the money home with a simple tax.
Momentum: Money managers are always under pressure to beat the index and AAPL is the winning stock on the index so they need to cover their contrived short positions like Ichan said. Recent movement could be due to this.
India: In previous earnings call Mr. Cook said India is a tough nut to crack saying it has many 'layers'. In the last ER call he said it is possible a China like scenario can playout in India! Looks like he is seeing a path to success there. (I have not added this in my DCF calculations though - very conservative - another upside poetential).
Camera patents: I came across a nice Apple patent, a periscope camera. This allows them to put a much better camera in a small form factor. Lots of scope to improve the camera and bring in some SLR like zoom features.
Apple Car: Poaching of employees from Tesla and A123 and the way Mr. Cook avoided the questions today indicates they are doing something in the space. However I would think it will too lame if they tried to do the same thing Tesla is doing today. They better do the self driving car or find a nice trade off product that can meet it half way paving the way to a mature product in a few cycles.
Health market: I am still hopeful they will add some value in this 3 trillion industry and take a cut in it. I am glad they are not doing Google style data collection.
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