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Apple's Fourth quarter 2011 Growth Scorecard

After the transitional third quarter, Apple’s earnings growth returned to an exceptional level. As the following chart shows, earnings growth has maintained above 50% growth since 2009.

Q3 turned out to be a transitional quarter with 52% growth but Q4 proved to be  “exceptional” with growth above 100%.  This is the third highest rate of growth in the five year span shown. Sales growth was also very near the top of the range, coming in fourth historically.

When looking at the components making up sales, we can see each product line’s revenue growth in the following table: 

The growth leaders were also the largest product lines in terms of revenue. iPhone and iPad had triple digit growth rates and that translated into the bottom line growth.

Music related products and services which Includes revenue from sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories grew at 42%. This is the highest rate during the time frame shown.

Peripherals which Includes revenue from sales of displays, networking products, and Apple TV was next with 29% revenue growth.

The Mac line followed with 22% growth and Software which includes sales of Apple-branded and third-party Mac software, and services through the Mac App Store grew at 7%.

The iPod line continued to shrink with -26% decline.

I used color coding in the table to show the patterns of change and what I note is that the iPhone and iPad lines continue to be exceptionally fast growing businesses. The duration and amplitude of these streaks of growth should be a clear signal about the dynamics of these markets and Apple’s role within. Too often, I find, these signals are ignored.

  • http://nmuppala.wordpress.com Nalini Kumar Muppala

    What a run. Alas, except for Q3’11, the first paragraph could have been … maintained more than 65% earnings growth since 2009!

    • http://twitter.com/studuncan Stu Duncan

      How about more than 30% earnings growth for 19 of the last 20 quarters.  I haven’t checked, but I doubt there’s any other company like that.  Even small companies turn into large ones with that kind of growth.

  • Jon T

    Quite astonishing numbers. I wonder which other companies out there, even smaller ones, can boast such strong growth rates. For example, the average earnings growth rate over the last 8 quarters (ie post ’08 crisis) is 85.6%. And the two highest quarters are both within the last three…

    More importantly, one wonders if the impact of the tipping point is beginning to be felt. At which point the ride will be as big and as fast as Apple can produce product. So, use that $97bn wisely Apple – forget a dividend, buyback etc., just keep up with demand.

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  • Anonymous

    What is amazing is that this was the first quarter that Verizon customers had the option of getting the latest iPhone versus and older version or some other company’s version of the iPhone.  It will be interesting to see as momentum builds whether the Verizon and Sprint sales mix starts to look like AT&T’s. And then after three quarters of that evolving mix will most likely come iPhone 5.  The flip side to that argument is that US sales will become increasingly irrelevant as China takes off.

    • http://www.asymco.com Horace Dediu

      Verizon was approximately 12% of iPhone volumes last quarter. I’ll provide more detail as we get data from Sprint.

      • Anonymous

        It would be interesting to look at the ramp up over the years at AT&T.  I believe  iPhone represented about 80% of their smartphone sales and very few of those were the 3GS. I don’t have the data but perhaps you do, but what did the trajectory to 80% look like.  I think the comparable number for Verizon is 55%, pretty much out of the box.  How long till it gets to 80% as well and for Sprint too. I wasn’t shocked by the 50% Verizon number since in the last several weeks i had been asking Verizon Salespeople the question and I was consistently told that it was just over 50%. But is surpassing that the trajectory for Verizon was so steep and perhaps will be for Sprint as well.  The iPad vs Android is still very puzzling to me.  We read about massive sales of Android tablets into the channel but I don’t see them out in the wild.  When I ask store clerks when was the last time they sold an Android tablet I consistently hear weeks to months.  I am amazed that Walmart allocates(or perhaps sells) as much shelf space as they do to Android tablets. So the big question is if iPhone is winning on factors other than price based on more transparent numbers, how in the world are the Android tablets getting supposed market shares above 40% when they supposedly cannot compete on price and when they try seem to fail, with the big exception of Amazon.  And Amazon’s challenge will be to not let the losses on the Fire sink the company.

  • Anonymous

    I will be especially interesting to watch the growth of the iTunes Store.  I think it is still under the radar and that it could be a substantial source of revenues and profits as the installed base of Apple hardware rapidly growths.  

    It generates lower margins, so it would need to be a story of massive volume.  It’s the strategy behind the Fire, but I think Apple is the one with the best chance of pulling it off  

    Especially if they are successful with iTV and introduce video subscription packages  

    • Anonymous

      The stores are all break-even businesses for Apple. They’re designed to be beneficial to content creators so as to draw us in like flies.

      The money is set-up like this:100% of retail price – 29% overhead – 1% Apple profit = 70% content-owner profit. In the music store, the content creator gets 90%.

      It’s deliberately setup to put Apple in a neutral position rather than the predatory position that content creators usually find themselves facing when they deal with large corporations. Apple just facilitates the connection between content creator and content consumer with 1-click.

      The 1% cut adds up and it is significant, but probably not significant to Apple when they are also getting 40% of every iPad, Mac, iPhone, iPod, and AppleTV sale. People like to pay for hardware more than any other thing.

  • Anonymous

    Actually what is amazing is that this is not some small startup at the beginning of its market curve; this is one of the largest corporations on Earth. Fifty percent growth for a four hundred billion dollar enterprise is astounding.

    • Gerry

      And that was the bad quarter

    • Anonymous

      Even though they are not small, I think they are a startup, and I think they are at the beginning of their market curve. They’re big because they’re designed to meet the global demand for client computing in the 21st century, where we buy more computers every year now than were sold in the whole 20th century.

      If you want to be ready to sell 3 billion iPhone 7’s, then you have to get big and then keep on growing.

  • http://openid.aol.com/makesmelaughhard AppleKilledMobileFlash

    It still doesn’t quite explain why the P/E continues to shrink for Apple.  The market is irrational.  I’m going to have to assume that nothing will change for Apple shareholders in the near future and Apple’s shares will remain undervalued despite increasing earnings quarter after quarter.  If shareholders haven’t caught on by now, they never will.

    • http://twitter.com/JessiDarko Jessica Darko

      The “Law” of large numbers is why the P/E continues to shrink.  The idea of Apple earning $80B in *PROFIT* in a SINGLE QUARTER in Q1 2015 just boggles the mind. 

      The thing is, it doesn’t really matter to us whether the market is rational or not.  Apple booking the profit will always force the share price up, even if that share price is just the book value.

      Personally, I think it will stop shrinking around a PE or 10. 

  • Tatil

    Are these numbers compared to the “previous quarter” or the “year-ago quarter”? 

    • Andrew Wilson

      These values compare the quarter to it’s year-ago quarter.

    • http://www.asymco.com Horace Dediu

      The answer is in the upper left corner of the table. y/y means year over year.

  • Andrew Wilson

    iPad unit sales: 111% y/y. iPad revenue:     99% y/y.
    Why aren’t these values keeping pace?  Does this mean that Apple is accepting lower profit margins for the iPad to help continue high growth?  There isn’t enough data quarterly data available to support an idea of this being a trend, so I’ll try to hold back on speculating Apple’s strategy iPad based on this alone.

    • Brian Loftus

      Apple does not report individual product profit margins.  The revenues include iPad services and Apple-branded and third-party iPad accessories.  Therefore, the possibilities is people on average are selecting a cheaper iPad (less memory or a lower percentage of G3 enabled) or they are buying fewer accessories.  Perhaps all of those Christmas gift accessory buys will show up next quarter.

      • Kizedek

        It’s not necessarily people selecting a cheaper iPad, it’s cheaper iPads being selected for them:

        In 2010 I bought us a top of the line iPad (64GB, 3G/GPS); but we received our second iPad, an iPad 2, last year as a result of a promotion (for changing insurance providers) — and of course, they only gave out the basic model. I am sure they gave out thousands of them.

      • Mark212

        or it could be that the margins on the iPad 2 aren’t as good as they were on the iPad 1.  The 2 was a total re-work, so that means virtually none of the parts from the previous model could be used = more expensive.  Compare with the iPhone — lack of a case change for the 4S means Apple could book record-setting margins for that product.

        My guess is that the iPad 3 will co-exist with the iPad 2 (instead of replacing it) and the margins on the iPad 2 will be larger. Alternatively, they could stay the same, but pass those cost savings on to the consumer in the form of lower prices.

    • http://www.asymco.com Horace Dediu

      Average prices for the products vary seasonally and on the basis of time in market. The mix of high-end variants is higher at launch and lower during gift-giving seasons.

  • Andrew Wilson

    Prior to Q110 Apple reported it’s iPhone revenue using 24-month subscription accounting rules (GAAP), which defers the revenue of a unit sale over a 2-year period.  I assume that the pre-Q110 data in this chart is non-GAAP earnings, as this was provided by Apple when reporting their quarterly results.

    Is the post-Q110 data non-GAAP as well?  That is, are the results after Q110 adjusted downwards to compensate for the fact that the deferred revenue was brought back to it’s point of origin?

  • Jz

    It seems to me the biggest near term and medium term risk to Apple’s growth story is some kind of hardware production glitch or prorduct recall due to defects. The probability of this happening is small but consequences are big as Apple’s revenue depends on just three product lines. I realize that Apple has had a great track record in terms of execution and it hasn’t had a major hardware issue in recent years. But there is always that possibility. If Apple encounters one of these hardware issues, it will damage Apple brand reputation in addition to market share loss for a quarter or two. The question is how much investors are discounting these risks as reflected in the current share price.
    Anyone has an analytic model to price this type of execution risk?

    • http://wmilliken.livejournal.com/ Walter Milliken

      A reasonable issue, but I believe Apple employs a fair amount of manufacturing and component supplier diversity to avoid exactly this sort of catastrophe. It seems unlikely that something would affect an entire product line except an actual design flaw. Otherwise, you’re looking at some fraction of a particular product made over a particular period having to be repaired/replaced, or some fraction of production capacity being offline for a period of time.

      Simple production problems have happened (e.g. the Japan earthquake/tsunami and the polishing plant explosion, most recently), but don’t seem to have impacted Apple much. I think this is because they employ multiple production facilities, rapidly switch to alternate suppliers, and/or keep a buffer of components ahead of production that can smooth over supplier disruptions.

      A substantial recall would be more of a problem, but primarily if a fundamental flaw went unrecognized over a long production period. This has actually happened, but all of the cases I can think of involved batteries. Since Apple can replace batteries fairly easily, even in products with “non-replaceable” batteries, the main hit would like be from the labor to replace a battery (typically a fraction of an hour), and from the bad press. However, even the fairly large number of potentially-flammable iPods doesn’t seem to have hurt them much, probably because the actual number of failures hasn’t been terribly large.

      The worst-case scenario I can think of is some kind of “time-bomb” effect in a product where a component failed frequently, well into the product lifespan. I think the closest Apple came to this was the problems with a particular Nvidia chip in the Macbook Pro line, which took Apple some time to recognize, and required a motherboard replacement to correct. Fortunately for them, the number of devices affected was relatively small, but something like this happening in, say, the huge number of iPhone 4Ss would be a substantial hit. This may be one reason Apple is taking more control over their critical parts (think A5 processors), which would hopefully minimize this sort of risk of supplier sloppiness.

      A design flaw could cause similar problems, but virtually all hardware design flaws will surface quickly in early prototype testing, and software flaws can be fixed quickly and cheaply by updates. So the primary vulnerability is probably still to supplier issues.

    • Anonymous

      They would just announce that they will replace all defective hardware for free. They have the money to do it, they have the infrastructure to do it. We know this because they are replacing 2005 iPod nanos right now because the battery has a design flaw. My roommate has one of those nanos, and rather than being pissed at Apple, he approves of them standing behind their gear and is even more loyal to them.

      I had the original AirPort Base Station in 1999, which had a 1 year warranty, and failed after 1.5 years along with thousands of others. Apple recalled them. They sent us all new ones.

      • Jz

        Let’s consider a hypothetical situation: it’s June 2012, weeks before iPhone 5 release date, Apple discovers a critical manufacture related problem and they are unable to ramp up production for 6 months, thus missing 2012 holiday season. This allows Nokia/Microsoft and RIMM to fill the gap. lost market share and momentum could cost significant decline in share price. This is a scenario with very small probability but large losses. The expected loss from such an event is finite.

      • Simon

        Which is probably exactly why Apple twice released S versions that reused the existing design. One year is too short to ramp up the production for a new design but two years is doable.

        Also they now purchase much of their components from multiple sources. It is very unlikely that Apple runs into a situation where things get stuck for 6 months, the white iPhone notwithstanding,

        The only somewhat imaginable scenario would be North Korea wiping out South, taking away LG and Samsung. However even that isn’t a very likely scenario.

    • http://www.asymco.com Horace Dediu

      Neither semiconductor and hard drive supply volatility nor natural disasters have affected Apple’s trajectory so far. You can certainly try to imagine scenarios of failure but be careful with probabilities. Apple’s managers are probably working on contingency planning all the time.

  • Forget H

    Your graphical displays are excellent, although the product line graphic is too large for my iPad. I find the visual display of the analysis extremely revealing in terms of the apple’s client statistics.

  • http://wmilliken.livejournal.com/ Walter Milliken

    Horace, it might be instructive to do a version of this chart with the iPad numbers subtracted out, since one of the perennial fears the analysts bring up is that Apple *must* keep bringing out new killer products to continue growing.

    The same thing could be done for the iPod/iPhone data further back, though there it’s a bit harder to say what would have happened with the iPod if Apple hadn’t bought out the iPhone and cannibalized a big part of the iPod market.

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  • jeff partlow

    There has been so much talk about their $97B cash in the media.  I do think that not paying a quarterly dividend does exclude a large category of institutional investors (who would love to own Apple) but who are restricted to invest solely in dividend-paying companies.

    Tim Cook is clearly open to the possibility, and my best guess is that the Board will approve both a one-time special dividend and a regular quarterly dividend )with an initial annual payout rate in the 1.5% to 2.0% range).  My guess is that this will occur before next quarter’s earnings release.  This will be a significant catalyst in reversing the current P/E decline. 

    I like sports analogies.  Overall where are we?
    iPhone — 3rd inning
    iPad — 2nd inning
    China — 2nd inning 

    With FY12 earnings that will approach $50 coupled with a dividend, my 1-year target is $650.
    How about FY13 conservatively at $70 x 14 P/E = $980. 
    Despite the incredible price appreciation to date, with the price now around $450, it is still advisable to BUY, BUY, BUY!

    • Jz

      If your conjecture is correct, after the special dividend is paid, the stock price will simply be reduced by the same amount, and the earnings should not be affected by the payout, my guess is that the new p/e would be even lower than it is now. If every share holder re-invests the special dividend back (after paying 15% tax), the stock price will still be lower. You argue that more people will be buying the stock for the first time because of the 2% yield and therefore the stock should trade at a higher p/e, there is no empirical or theoretical evidence for this.
      By keeping the cash on the book, apple is, in fact, doing dividend reinvesting for share holder without paying 15% tax and retaining all strategic option value for share holders. The enterprise value to earnings ratio is not affected buy special dividend payout!

      • http://wmilliken.livejournal.com/ Walter Milliken

        I think the theory behind this speculation, at least about regular dividends, is that all the “value fund” mutual funds would immediately leap into Apple, as they are currently blocked from buying it due to fund management rules (i.e. can’t buy any stock which doesn’t have a dividend). If it paid a halfway decent dividend, presumably the currently-excluded funds would want to load up on Apple, since it would make their overall growth performance *much* better.

        The potential flaw here is that if all those funds did go on a sudden buying spree, it would drive up the stock price fairly quickly, and thus drive down the effective dividend yield. I have no idea how this would settle out in practice….

      • Jz

        Look at what happen to intc, Cisco and Msft, yes, stock will have an initial spike after a big dividend announcement, but it will not last long. If you are an activist hedge fund, you would want to sell right after the spike. The long-term effect of dividend on share price is not clear at all. Just this past week, CA announced a 4 fold increase of dividend and the stock spiked immediately. Let’s see how long it last. The only way for lasting stock price application is through innovation and real value creation. Capital structure manipulation does not create real values.

      • Davel

        I would rather Apple focus on its products and customers than the stock price. Microsoft is driven by two products from the 90’s – Windows and Office. Cisco has ventured away from its core markets and failed. Most of Microsoft’s ventures away from its core have failed or disappointing. Mobile has been a black hole, search ans msn have not done well. Games for all the press is barely making money.

        Apple with the return of Steve has focused on what it does. Simplicity and using technology to enhance common activities. Music, phones and now tablets. It is not focusing on its cash and how to please the street.

        If the 2008 debacle should have taught us anything it is that the financial system that goes through the street will fail when they are under stress. Apple’s cash hoarde allows them to execute their business plan regardless of others situation. They do not have to raise money to invest in a technology or secure materials for their products. They already have the cash and have already done so.

        I don’t know how much cash is too much. But Apple should focus on its business and it’s customers and ignore the street. The advice of the street just serves to enhance their interests not others. How many cities, banks, countries have listened to the street and lost. Just look at Europe. Just look at the states.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        Well said & I agree completely with what you say.

        “I don’t know how much cash is too much.”

        I say there’s no such thing as too much. What gives Wall Street the right to decide for another corporation how much is too much.  With the way Apple’s been executing, Wall Street has no business in questioning how Apple executes its business.  If anything, Apple deserves the benefit of the doubt.

      • Anonymous

        “The potential flaw here is that if all those funds did go on a sudden buying spree, it would drive up the stock price fairly quickly, and thus drive down the effective dividend yield”

        But because Apple will continue to grow earnings strongly, the company will be able to repeatedly raise its Dividend, which increase yields over time, or push up the share price or both!

    • Anonymous

      It is not a matter of if, but when, Apple will start to distribute some of its immense cash mountain. 

      It is extremely unlikely, now that Steve Jobs is sadly no longer CEO, that Apple will continue to accumulate cash just for the sake of it. The company obtains tiny returns on cash and sooner or later the board will have to start distributing some of it.

      The most sensible way is to institute a regular and growing dividend policy, because it will attract a whole new class of investors who are legally prohibited from investing in non-dividend paying stocks.

      What I find extraordinary is that there are countless articles, blogs and comments moaning and complaining about Apple’s PE compression resulting in ridiculously low PE’s. Yet when anybody suggests paying a dividend with the surplus cash, which is a common sense way of enhancing the share price, this arouses howls of hysterical protests along the lines of: “the board knows best”; “if you’re not happy, sell”; “if you’re not happy sue them”; or even “shut up”. It is quite proper for shareholders to discuss such matters. After all we collectively own the company.

      However, it is just a matter of time until the board starts paying out. Those that say paying dividends does not enhance share price, citing Microsoft and Cisco as examples, fail to take into account that these two companies are low growth, whereas Apple is growing earnings several times faster and will be able to increase dividends commensurately.

      The real question has to be: Why did Apple not start paying dividends sooner?
       
      Anybody who reads Adam Lashinsky’ “Inside Apple” will find that the reason was Steve Jobs. 

      Jobs was unquestionably one of the most brilliant CEOs of modern times, but he was a man of eccentric and sometimes blinkered opinions. One of these was the disdain he had for shareholders. Amazingly, according to the author, Apple has only two people working in they investor relations department which is ridiculous for one of the largest global companies. 

      Under Jobs investors, if not facing downright hostility, were given the cold shoulder. Jobs believed that all the company had to do was produce outstanding results year after year and the share price would look after itself. Unfortunately this proved not to be the case. As Horace has documented and charted, year after year, while earnings have accelerated, the PE ratio has compressed until it has now reached bizarre levels. 

      The perception in Wall Street appears to be that Apple cannot continue to grow strongly.  Institutional investors seem to believe believe that the company needs new innovative disruptive technology to continue to grow, citing the law of large numbers blah, blah blah. No amount of of well researched articles and blogs have been able to change these false perceptions.

      The only people who can actually get Wall Street to properly understand Apple and appreciate its extraordinary growth potential is the company itself. Fortunately, according to the book, it appears that Tim Cook is much more investor friendly. He might be able to correct this wrong impression about Apple.

      As for this cash mountain of $100 billion, Jobs appeared to have been psychologically very affected by the near bankruptcy of Apple after his return, when they had just a few months cash left. Jobs had to accept a humiliating agreement with Bill Gates who he persuaded  to invest $150 million in Apple at this critical juncture. This was a life saver and gave Jobs time to turn the company round. Consequently it seems Jobs has clung to cash like a comfort blanket, and used his overpowering presence on the board to veto any cash distribution.

      One way Tim Cook and the Board can signal to Wall Street that the company is embarking on a more investor friendly era is to actually start paying a dividend. The Board might even consider starting to host investor days or seminars, something Jobs refused to do.

      • http://twitter.com/zzbar Joe Zou

        One can debate the pros and cons of dividend policy (or lack of), but don’t believe it has anything to do with the stock price appreciation in the long run.  

         Apple may or may not start paying a dividend, but the capital structure change has little correlation to sustained share holder returns over a long period. Apple may well pay out some of the cash, and I am not against it as a long term share holder, it is not a reason to invest in the stock. If i had wanted to receive a dividend before buying the stock, i could have elected to buy a few percentages less and kept the cash to begin with.  
         I am very satisfied with a steady rise of the stock price (25% per year)  without any overnight spike induced by some dividend announcement.  

        You are right, csco and msft stocks have gone nowhere because they are unable to grow, no amount of dividend and buyback would have resulted in different stock returns.  Apple share is doing well because of its rapid growth regardless of the lack of dividend. Just because every analyst says “if apple pays a dividend, the stock will do much better” doesn’t make it so.  There  simply is no empirical or theoretical evidence for that. 

      • Davel

        Microsoft does grow. It actually grows very nicely. However it is not a tech growth company which is why the offer a dividend. The street loves Microsoft but it’s stock price has gone nowhere for 10 years. The street hates Apple and it’s price keeps going up for 10 years.

        Apple has no debt and does not use the Streets services. Coincidence? When you buy back shares the street gets a cut overtly or not. Microsoft has bought back a huge number of shares in the past 10 years. Institutions can take advantage of that while individuals for the most part cannot.

        I believe it is not a coincidence that the professional money managers scream for buybacks and dividends while individuals that purchase a tech growth company are happy that the stock price goes up year over year and can choose to cash out their gains at any time or play the volatility of the company stock.

        I think the streets obsession with the cash is greed. They sit there and see the money and are angry that they have no access to another’s money because by right it is theirs.

        A shareholder is not an owner. This is fiction. The real owners of the company are the officers and the bond holders. Since when does a board listen to its ‘owners’? Shareholder proposals are routinely squashed by the board. Is that the action of employees to the owners?

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        I, for one, am glad Steve Jobs didn’t pander to shareholders / investors.  His principles in running Apple were the right ones; build great products & provide great service that their customers love.  All too often these days, far too many companies pander to shareholders who only care for profit all the expense of product quality, user experience in terms of using the product and customer service.

        The culture of Apple revolves around creating great products and services and good on them.  There’s an old saying;

        If you forsake customers in favor of profits, in the end you will have neither customers nor profit.

      • Anonymous

        Shameer,

        You’re making a wrong assumption, a false choice. 

        It is not a matter of EITHER building great products and providing great service OR “pandering” (as you put it) to shareholders, what others might more accurately describe as providing good investor relations. 

        It is quite possible for good management to do both. There is no conflict between the two. 

        There is no doubt that Apple  shares are seriously undervalued. There are countless article, blogs and comments complaining about this. The cause appears to be that Wall Street does not properly understand Apple and its fantastic growth potential. 

        Just ignoring shareholders as Steve Jobs did is counterproductive.  

        Good investor relations can do a lot to make Apple better understood.

      • jawbroken

        Is there any evidence that Apple shares being undervalued has anything to do with their investor relations or lack thereof?

      • Anonymous

        Are you saying:

        a) That Apple shares are not undervalued?

        b) If you say they are undervalued, what is the reason? And what evidence do you have for your explanation?

        c) Apple’s poor investor relations were notorious under Steve Jobs. There is ample evidence of this. I have previously cited the evidence in Inside Apple. Here’s more:

        “Apple, in fact shows relatively little interest in Wall Street, seemingly viewing investors as an irritant at worst, a necessary evil at best” 

        “The company’s two-person investor relations team doles out  precious little information to Wall Street analysts and shareholders, in a way unlike any other company. Apple holds no analyst day, a routine event at most companies that exposes several hundred investors to upper management, who make presentations about the company’s plans. Jobs treated investors with something between ambivalence and contempt”

        Steve Jobs seemed to think that as long as the company continued to grow earnings strongly he could ignore investors because the share price would look after itself.

        The evidence clearly shows that this is not the case. Institutional investors do not understand and appreciate Apple’s huge competitive advantages and massive potential to continue to grow exceptionally strongly for some years to come. Because of this lack of understanding, Apple’s PE compression has continued for several years, so that it now is at absurdly low levels.

        Before  anybody jumps to the wrong conclusion that I am advocating that Apple disclose its new products and other trade or product secrets, THIS NOT WHAT I AM SAYING.

        WHAT I AM SAYING is that Apple could do a much better job explaining, for example, the huge growth opportunities for the iPhone. They could explain and show slides in their presentations that the smartphone market as a whole is growing at 40% to 50% a year and is forecast to grow to 4 to 5 times its present size.

        They could also explain Apple only has 5% to 8% of the mobile phone market and they intend to continue to grow their smartphone and mobile phone market share. 

        The investor would only do the simple math: the smart phone market will grow 4 to 5 times and Apples market share could double to triple, so Apple still has huge headroom to grow iPhone sales 8 to 15 times  between now and 2020.

        Numerous bloggers and comments have cited similar numbers, but Wall Street has taken no notice. However if Apple itself was to make the case with good presentations and citing evidence, then Wall Street might take notice and realise that, contrary to their present opinions, Apple still has huge headroom and opportunities to grow very strongly for years to come. This might just have the effect of improving the company’s PE ratios.

      • jawbroken

        You are the one making a large number of assertions, I don’t see why you are grilling me for explanations.

        If I accept that Apple shares are undervalued and I accept that Apple’s puts significantly less effort into investor relations than similar companies that doesn’t mean I have to make the leap to presuming that the two are in any way related. Do you have a number of examples of other companies showing that improving investor relations leads to an appreciation in the share price?

      • Anonymous

        “If I accept that Apple shares are undervalued and I accept that Apple’s puts significantly less effort into investor relations than similar companies that doesn’t mean I have to make the leap to presuming that the two are in any way related. ”

        If you cannot see, or if you do not want to see, the relationship, so be it!

        And the same applies if you do not want to provide an alternative explanation!

      • jawbroken

        As far as I can tell there’s nothing to “see”, just your assertion of a causal relationship from a correlation.

        There are many possible alternative explanations, perhaps the simplest being that any undervaluing is unrelated to poor investor relations. I’m not aware of any evidence that would allow me to come to either conclusion so I’m just trying to understand why you so strongly believe the explanation you’ve chosen.

      • Anonymous

        “I’m just trying to understand why you so strongly believe the explanation you’ve chosen.”

        Because until you or somebody else comes up with a more plausible explanation, its the best explanation around.

        Its no good you just claiming there are many possible alternative explanations when you are unwilling or unable to explain them? 

        Your explanation “perhaps the simplest being that any undervaluing is unrelated to poor investor relations. ” is simply a negative, not a positive or plausible alternative explanation.

        Come on, spell out an alternative cause, if you can.

        In the meantime my Hypothosis is the only plausible explanation so far!

        There may well be a more plausible explanation, but I cannot think of it, so I look forward to being enlightened.

      • jawbroken

        My view is simple: either the two things are strongly causally related or they are not. I don’t see why your assertion that they are causally related is the more plausible option. Certainly not because you keep saying it.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        Not to sound sarcastic but as I’m typing this Apple’s share price is $453 per share.  That’s considered undervalued? Really?

        Assuming you’re correct, I can’t even imagine what their true worth is.

    • Anonymous

      Last week, Apple announced a new product that they’re giving away for free, iBookAuthor, and maybe this is better than a dividend.  They said its worth several hundred or maybe a few thousand dollars, and anyone who is a publisher, author or teacher can have it.  They also have high school math and science textbooks that are interactive for $14.99, and they said this is an aggressively low price.  Plus they’re giving away the 100 free online courses through iTunesU.  This includes lectures, syllabus, reading materials and assignments–everything you need to take the course.  And the app for iTunesU is free too.  I think this is a wonderful alternative to a dividend.  It doesn’t benefit the shareholders, but it’s so great for students, parents, teachers and authors.  They said they’re very concerned that US high school grads aren’t prepared to compete in a global economic environment, and that among industrial nations we rank 17th in reading, 23rd in science and 31st in math.  And they want to do anything they can to help students learn and achieve great things.

      Here’s the announcement:  Apple Special Event.  January 19, 2012.

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  • Anonymous

    What I love about this site is that, while Horace has (to my knowledge) never stated it, it represents an empiricist approach with allowing for the exposure of the irrational in so-called market analysis. In fact the discussions have the recursive theme of “so how can you model for ‘this’ eventuality?” The resounding conclusion tends to be that the mix of contradictory theories outline one central and difficult to capture market- and industry phenomena: disruption.

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  • http://joeclark.org/weblogs/ Joe Clark

    You really need to rewrite the phrase “earnings growth has maintained above 50% growth since 2009” so it makes sense.

    Also, you use red and green in many of your illustrations. Since most of your readers are men and 4%–8% of men have trouble distinguishing red from green (with many provisos), that isn’t an advisable colour choice.

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