Apple’s Growth Scorecard

Apple revenues grew at the rate of about 6% in Q4, while earnings grew at 5%. These were improvements over Q3 and Q2 but the rate of top line growth is has not been this low since 2009. The bottom line is also slower than it’s been for the entire “epoch” or era of the iPhone.

The components of sales growth are shown in the following table:

Screen Shot 2014-02-05 at 12.05.10 PM

The company delivered performance inline with its own guidance so there should not have been surprises in the top and bottom lines. However, the disappointment might be in the low growth for iPhone (at 6%) and iPad (at 7%). The Mac and iTunes grew at moderate rates (16% and 19% respectively) while the iPod continued its decline with -55% growth and Accessories remained fairly flat.

As the graph below shows, the iPhone and iPad are the bulk of the business so their performance is a large part of what is observed.

Screen Shot 2014-02-05 at 12.31.53 PM

The speed with which products are introduced and scaled is phenomenal so it is more important than ever to see beyond the trajectory of existing products into the pattern of the introduction of new product categories.

Markets are effective in anticipating the path of a technology as it ascends into the hands of users, especially if it is destined for ubiquity. But markets are completely incapable of anticipating the emergence of new technologies.

In this regard markets are a reflection of common sense rather than uncommon wisdom.


  • Matt Lew

    AAPL indicated that Revenue was negatively impacted by 2.5B attributable to three factors – increased revenue deferral, forex (particularly the yen weakening 25% y-o-y), and decrease in iPod rev. The only known one is iPod rev., which equates to $1.17B, leaving $1.33B attributable to forex and rev deferral. If you adjust, you get to about 8% growth – still doesn’t change the scorecard materially however.

  • I’ll say market bets more than predict, their effectiveness in anticipating a path of a technology is more a bet on some brutal change that can create money for the betters than a realistic valutation.
    It is quite a while that market is betting on a fall for apple. Common sense says it will come since without new products (that are never taken into account) the current apple’s products will slow down and eventually fall, but the market is only betting on sooner than later and every apple’s announce is followed by a price fall with a slow come back to previous values as soon as numbers are analized for what they really mean.

    I believe that even if the smartphone market saturate there is room for several years of improvements guided by accessories and ecosystem features that will maintain a fluid market, than a new product line will be required. There is still some time for the market to loose their bets.

    • charly

      A big problem with the smartphone market is that the rate of improvement has dropped. Mid market phone are getting to be good enough compared with high-end phones so not only is the market not growing but the high end will be squeezed.

      • madmaxmedia

        My iPhone 5 and my 3rd Gen iPad agree with your statement, and think it applies to tablets as well. (I make sure I always have the latest shiny thing from 2 years ago.)

        I guess it is more accurate to say there is absolutely nothing wrong with the smartphone market, but there is a problem for smartphone makers. The only solutions are to significantly innovate in the existing product, or come out with a new one.

        iPod- 2001
        iPhone- 2007
        (MacBook Air- 2008)
        iPad- 2010

        (I put the MBA in parenthesis because it was a significant innovation in terms of market impact, but not the sea change the other products were.)

        Now that it’s 2014, I guess it’s about time for something new from Apple, from a corporate P&L perspective. Whether there is even an opening for a new big thing right now, remains to be seen.

        I think Steve Jobs would not have succumbed to pressure from Wall Street to release a product prematurely- he cared too much about design, and would have simply cracked the whip on his team that much harder to get it out in timely fashion. Hopefully Tim Cook will similarly “sell no wine before its time.”

      • AppleTechSpot

        On the contrary. I believe the low end is getting good enough while the high end of the market can maintain differentiation via mobile wallet, touch ID and other advanced features. As a result I see the middle of the market getting squeezed. The abundance of low margin phones will cause Apple’s competitors to engage in a price war rather than invest in innovation causing a scenario similar to what we have seen on the desktop. In this scenario Apple can maintain the upper roughly 20% of the market that is most valuable while avoiding anti-trust issues yet still make more profits than the lower 80%. Just ask Dell and HP how this feels!!!!

      • charly

        Mid-range is mostly decontented high-end. And with silicon that just means last years silicon. You need market share for a mobile wallet to make sense. Apple does not have that outside the US. Touch ID is a gimmick and can be substituted by other not so good working methodes (hart beat etc.)

        Innovation happens mostly at the silicon level, Qualcomm is highly profitable and Intel wants in. The same thing happened in the pc world where Apple was absent in whole fields because innovation happened at the silicon level (the whole gaming world & music before OSX)

      • Kizedek

        Ah, Touch ID is a gimmick. Got it. Apparently NFC and Flash were gimmicks, too; but it took Apple disregarding them before everyone else realized it. I guess 64-bit mobile chips are gimmicks, too.

        Yes, Qualcomm is profitable. They even make radio chips for the iPhone and iPad. However, Apple is innovating in silicon, since they were a founding member of ARM and probably have more ARM experience than anyone.

        And yes, Intel wants in; but they got rid of their ARM efforts and don’t seem to be able to bring heat and power-management under control enough to make competitive mobile chips yet.

        However, what “mostly at the silicon level” actually means is that being able to integrate and optimize the OS and silicon together is even better. Precisely the area in which Apple excels: as in delivering more processing with less power; or, using the GPU more extensively than others, etc…

        [Pretty sure a lot of music production was done on Mac OS.]

      • charly

        Flash wasn’t a gimmick during the iphone introduction.

        NFC is infrastructure, needs time, will rule.

        64 bit is not a gimmick but an infrastructural thing. Needed but not now

        Qualcomm is very profitable. They are the ones that make the money. Not the distributors like HTC who’s job is mostly to order the right amount of memory, screens, snapdragons and slots at foxconn

        I have an Intel table, i’m very pleased with it

        Making the silicon and OS etc. like Apple does doesn’t allow you to find niche markets as for example Voodoo did.

        OS 9.crash Define a lot. Amiga was still ruling

      • Kizedek

        Flash has always been a gimmick, including on the desktop, for pretty much anything other than what it was created and intended for: the authoring of interactive CD-ROMs back in the day.

        It was misused and misapplied; and the hope for it on smartphones was as a shortcut and catchup to Apple… until it’s unsuitability for the internet and devices with low resources became patently obvious to even the most fanatical supporters, though it was obvious to many others for decades.

      • charly

        Sadly flash was used to much to claim that it was a gimmick

      • Kizedek

        True, it wasn’t a passing thing, as often indicates a gimmick. But many ways in which it was used, or overused as you indicate, was to make a gimmick of the things that employed it: websites, interfaces, some “smartphones”, etc. Without the depth that it was attempting to imitate or promise.

      • dannyo152

        As long as you choose to apply idiosyncratic meanings to words, I suppose you’re always right.

        To the rest of us a gimmick is something that is spotlighted, that may or may not have high uptake, but does not present a long-term value to the customer.

        Flash in the late 90s and early Aughts certainly solved some problems, but at a cost to everyone. Users had to deal with excessive power/cpu consumption, buggier browsers, and security problems. Those who used it on their web pages did so at high expense when paying the Flash programmers and lost out on business because the Flash content was not searchable in the days when search ascended.

        I agree that in the days before 2007, Flash was not a gimmick. After the transition to mobile began, Apple was adamant in not offering it, provided a less expensive alternative in up-to-date HTML5, and started to de-emphasize it on the desktops. Those who offered Flash in mobile devices did so for about 12-24 months, found it wasn’t actually selling any thing and chewed up batteries, so they stopped. But, in the days that Apple was told the iPhone was going to be killed by the smartphones that had Flash, Flash on a smartphone was definitely a gimmick.

      • macyourday

        Flash is used by the ignorant, the sheep and those that hate their users and customers. Name 10 flash based sites that aren’t a waste of time and resources, sucking data and power for no useful or productive purpose.
        Zinio for example, works quite well on the ipad, but those pr*#*s use Air on the desktop, making it slow, limited, buggy and quite excruciating to use. Adobe makes you wait through what seems interminable time for basic pages to load with their pointless flash wanking, so I avoid them unless I have no other choice. Don’t forget all those stupid landing pages with the pointless “loading” messages for crap you don’t want to see or wait for. One of my favourites was “click to enter”. That was always something to look forward to on dailup. Flash “developers” need to be sent to salt mines or gulags and made to watch their colleagues vile output.
        In case it wasn’t obvious, I loath flash and can’t wait for it to be a historical footnote.

      • StevenDrost

        NFC could rule, but I’m not so sure it will and if we are back to the 64 bit debate, then do your research. ARM V8 instruction sets are good for about a 15% speed bump alone. Who would not want that?

      • StevenDrost

        Touch ID is not a gimmick. Have you used it? I heard the rumors, but I never expected it to work as well as it does.

      • Atlas

        “Touch ID is a gimmick”

        still believe that?

  • Accent_Sweden

    That pattern of new product introduction is the conundrum. A trajectory of new products, of innovation seems to verge on reading tea leaves. When reading the phrase, I say to myself “yes, that’s what I sense”, but attempting to clearly define it causes my head to hurt. Based on all the information I am able to collect and make sense of, I feel it is there, but feelings are suspect. Visualizing it is hard. Graphing it seems unreasonable yet that’s what I want (from Horace). Years between new product category introductions overlapping sales data, integrating R&D spending, fleshed out with capital expenses numbers, the philosophy of the company, and so much more. Perhaps we need a 3D graph that can be spun and viewed from all angles to reveal the connections and patterns. Got one of those handy?

  • Teh29

    Horace, do you have any data on where the IOS user base total currently stands? I believe the last time Apple provided an update a year or so ago, it was at 500M. I believe that the iPod is an important, less expensive gateway device into the ecosystem, and the lack of a refresh may be impacting the number of new users being added.

    • charly

      Looking at the price of an iPod i wouldn’t say that

      • jfutral

        Well, if you consider that iPod does not come with a two year contract attached, it kind of is. I agree that functionally, it is not.


      • Teh29

        Exactly… the iPod lineup hasn’t been updated in 2 years so it’s significantly behind in terms of performance/features. Slap the 64 bit processor and better camera on the iPod Touch and I bet Apple would have sold a boat load more this holiday quarter. I’m assuming an update is coming soon, hopefully.

      • barryotoole

        I think that as Wi-Fi becomes more universal, and VOIP becomes norm, expect the iPod Touch to mirror iPhone in upgrades.

      • charly

        A boat load can still be insignificant. the price difference between ipod touch and tablets or low mid range Android is wrong for ipod to be a significant market

      • StevenDrost

        Have to disagree. With the amount of phones being sold every year, it makes much more sense to use an old phone than a spending money on a new IPod and that trend will only get worse.

    • stefnagel

      The iPod may be what Jobs wanted to sell originally: a noncarrier phone alternative. I’d love an iPod on steroids: 5 inch screen, fingerprint id, latest camera, latest chips, gps, and data capability. Don’t need voice; need information and universal communication. Absolutely need it to fit in a pocket; an iPad is a purse not a wallet. Price it whatever; without the carrier full phone contract, I’d still be saving a bunch.

  • Below$600AShareIsPathetic!}:-(

    Does anyone think Apple has a product roadmap or do they just wing it according to the advance and pricing of components? I’m still a bit puzzled about why the iPod line doesn’t get updated on a yearly basis. I would think the iPod Touch should be upgraded about the same frequency as the iPhone in terms of processing power. I’m only guessing that the components would be somewhat similar.

    • barryotoole

      As SJ said, iPhone is the best iPod they ever made!

      • Pamela

        If the iPhone is the new iPod, then Ipod’s sales curve is a harbinger of thing to come for iPhone ? frightening !

      • Kizedek

        Oh, you needn’t be too afraid; I don’t think Apple is coming out with a $49 iPhone; and I don’t think anyone, including Apple, has Apple pegged for 70+% of the phone market.

        I guess this goes to prove that “best” to you and Apple critics has to do with gaining marketshare in the first instance. But, for Apple, calling the iPhone the “best” iPod is proof that Apple means what they say, when they say they want to make the best products they can. Profit and marketshare are not primarily sought, Apple lets them follow.

      • charly

        You can compare ipod trajectory with iphone. Ipod is dying because its market is dying. Iphone wont die because of a dying market but because others are cheaper (and better)

      • StevenDrost

        My belief is the smartphone is the new PC and will enjoy a much longer life than most analysts would believe.

      • macyourday

        Why or how is that the case? The iphone is not just an iPod, which in itself, the iPod touch anyway, is a useful device which only lacks cellular connectivity. Otherwise it would be called an iPhone. Or should I assume sarcasm? Maybe you’re an anal_yst.

      • stefnagel

        In terms of cost, the iPod could be the best iPhone ever. See iPod Touché note above.

    • rattyuk

      Why sell an iPod touch with the same specs as the iPhone 5s when you are selling every A7 chip you can make?

    • obarthelemy

      Pretty much everyone I know that’s in the Apple ecosystem got started with an iPod. Instead, kids now get started with a entry- to mid-range tablet and smartphone, and at a younger age (8-10 for tablets, 12-14 for phone). It’ll be interesting to see if they move over to Apple later on.

      • azazello

        Now, this is what I call serious market research, folks!

      • obarthelemy

        Is there any research in any of the comments ? Do you notice that only for not blatantly pro-Apple comments ?

      • assert

        You might feel this way, but it could be related to the records you set for unsupported assertions per post.

      • obarthelemy

        So, no answer.

      • assert

        Overwhleming more iPhones and iPads sell now than iPods ever did, so your assertion that less “kids & teens” are receiving them than they ever did iPods needs some serious backing evidence. I don’t know what answer you want from me.

      • charly

        Teens/young adults form the most important market for portable music like walkman, boomboxes & mp3 players. In the time of mp3 players a market share of 70% meant that you 70% of the teens used your stuff. Now they have a much smaller share of the phone market and a likely even smaller share of the teen market

      • assert

        I’m going to quote myself again, and fix a typo in the process, since there’s no further data or analysis presented in your response.

        “Overwhelmingly more iPhones and iPads sell now than iPods ever did, so your assertion that less “kids & teens” are receiving them than they ever did iPods needs some serious backing evidence.”

      • charly

        Iphones & ipads are used by grannies. MP3 players weren’t used by grannies. They were used mostly by teens/young adults. When mp3 players were hot every teenager had an mp3 player and Apple had 70% of the market so the majority of teenagers had an ipod. Smartphones & tablets are used by a much larger part of the population than mp3 players ever were so while Apple sells much higher numbers their market share in the teens sub part of the market has dropped

      • assert

        This is, again, just a series of assertions that are not at all convincing.

      • azazello

        The Lacanian hysteric’s discourse is authentic but inconsistent and is not itself the source of knowledge, as it is a mere challenge to prevailing discourses. This _may_ lead to re-cognition, re-integration, re-formulation by others but as it is driven by opposition it is often a mere intellectual annoyance. The divided subject of the hysteric is a SYMPTOM, and its provocations are the only means of being, the only position it knows. It is the essence of the avante grade, the revolutionary, the jester and… our contemporary: the posting-board the troll.

      • obarthelemy

        “avante grade” ? Oh my, them there words too fancy for you.

      • azazello

        GOT YOU (planted mis-spelling now edited in the original post)! This is what we call in psychoanalysis the confirmation of an interpretation. YOUR weapon of baiting in my hands has worked: you have nothing to say but can only needle, correct and challenge. You—little friend and your meager existence—are symptoms.
        So lame… so sad, really.

      • obarthelemy

        Shuuuure. Any answer to my question, though ?

      • azazello

        (analyst remains silent)

      • obarthelemy

        Who’s the one who’s providing input and who’s the one who’s provocating, again ?
        My original post was fairly lame as an Apple bash (which it isn’t, but you seem to feel threatened by it anyway) and anecdotically informative, none of yours is.

      • azazello

        (analyst remains silent)

      • Pamela

        I think the analysts have remained silent all along on that one. Both of you stolp trolling, pllease.

      • Space Gorilla

        Well, you fall into the same troll camp with many of your comments, irrational anti-Apple nonsense. Perfect example not far below in this very thread.

      • azazello

        Troll; it takes one to know one. BTW, from your comments, spelling and syntax (not to mention having no clue what a psychoanalyst is) I suspect your being a Korean Samsung shill.
        Hyun-woo “Pamela” anyone?

      • Space Gorilla

        obart is a well known troll around these parts. Best not to feed. But hysterical is an excellent way to explain much of the anti-Apple position. It is strongly based in an emotional response.

      • StevenDrost

        He has a point. Android has marketshare. Most people would prefer to give kids cheaper devices and tablets are stealing a lot of the role IPods used to fill with kids. That leads to the scenario where kids grow up accustomed to Android.
        As a counter point, the tablet apps for Android pale in comparison to IOS. Anyone knows that for playing games IPads are the way to go.

    • obarthelemy

      Also, to me that’s the major drawback to Apple lack of divisions. Nobody’s in charge of keeping the iPod alive when top management is otherwise occupied.

      • charly

        Ipod or any other mp3 player can’t be kept alive except in the very-light-sturdy-and-small exercise market but Nike wins that market by branding alone. De-contented iphones sold a ipod are what makes sense now to extract the last profits out of this market and A7’s wont spur more sales but will cost some iphone 5S sales

      • ptmmac

        As a smart phone for the home it would be an awesome product. I would love to see Apple experiment with the iPod division by adding sip based smartphone that works on a wireless setup. Why can’t I use my home phone as a smart phone? A bigger screen for the iPod would cut into iPad mini territory, but it would also allow a new hobby to develop. I would even like a wired version of the iPod so I could always find the central phone in the house when someone is calling us.

      • charly

        You should buy Android for that and you don’t even need sip for that. Some ADSl providers have an Android program that lets you connect to your ADSL broadband router & phone adapter.

        ps. I expect it is just sip under the skin of the program but it feels differently. It is also one of the Android apps i want were the IOS isn’t released yet

      • charly

        It sounds like you want something like this

        They are German so their German version is out of lab

      • charly

        One of my local ADSL providers works with Fritz! routers and they only released an Android version but it seems that Fritz! also has a IOS version!app-fon/id372184475?mt=8

        But i don’t know if you can phone Vanuta with it.

      • macyourday

        So, they should piss off their “partners”, the phone networks by openly advocating the avoidance of their price gouging? Face Time video and voice not enough for you? The many apps available for wifi communications not sufficient? I think I understand your intent but I don’t think Apple can push it harder at this stage, just like the Apple TV device is slowly heating the water (you know – frogs in boiling water etc) that the TV networks are in. They are already afraid of Apple after their rise to dominance in distributing music so Apple placates the producers by agreeing to things like DRM and their other anti consumer devices.
        Isn’t the mini a more capable iPod anyway? As far as using your ipod on the wired phone network, the German made Fritz!Box routers already have an app for that, allowing you to make and receive calls on iDevices on your home network with more convenience than your central phone.

      • Reports of the death of the iPod have been greatly exaggerated.

        There’s an iPod in every iPhone sold. >50 million last quarter alone.

        And, while the iPod Touch and iPhone are similar in portability, iPads also ship with an iPod inside.

      • Space Gorilla

        The iPod is dead! Long live the iPod!

      • StevenDrost

        The IPod was always going to die. Why spend more to keep it on life support?

      • obarthelemy

        iPod Touch could morph into a mini-tablet, a portable game console, even an ereader… iPod non-touch is favored by runners etc… so could be the brains of the new health gizmos on top of a music player. Both are valuable as foot-in-the door and lock-in tools for the iOS ecosystem, with much lower price points.

  • Gene Grush

    I am extremely happy with the performance of both Apple’s board and the performance of Apple’s products. The board is continuing to implement Job’s vision and in the long run this will benefit the long term investor the most. We might be seeing the first truly blue chip stock to emerge from the technology sector in that Apple is setting up itself to last for many decades at a dominate level. The eco system and it’s level of satisfaction is the driving force.

    Microsoft had this to some decree with Windows and Office for the eco system side, but they never deliver the satisfaction side. Even so, it has taken many years to erode their monopoly on the operating system and office software side. IBM also has been around many years, but has had to modify their business model many times to stay large and their future is far from certain.

    Most analysis are wrong in their value assessment of Apple and are punishing them because they believe that either Apple’s margin will drop or their revenue will drop. Maybe both will drop. However there eco system and satisfaction rate will insure that the operating margins will stay around 37% and their vertical engineering will insure that the price of many of their components will be below their competitors which also helps them keep their margins. The satisfaction insures customers keep coming back.

    The latest analysis concern is the slower growth in IPhone sales that the analysis wanted. This caused the revenue concern and the resultant stock price drop. However, I picked up a few things from Tim Cook that the analysis ignored. First, Mr. Cook said that many of the buyers in North America where more new users to the IPhone and that the existing IPhone customers are holding onto there phones longer. As a long term investor, I had both feared and expected this pattern. It affects the growth in the short term, but in the long term it insures customer loyalty. Again insuring long term growth. In addition, Mr Cook also said it would take awhile to fully ramp up the distribution with their new deal with China Mobile.

    The other problem that analysis have is their fixation on market share. Apple initially surged in market share on both the iPhone and IPad and then android surge ahead. The reason for the catch up by Android was all of the existing hardware competitors to Apple needed an operating system to compete with Apple for touch pad devices and Goggle was giving it away. So naturally when these competitors entered the touch pad smart phone market with a free operating system, lower cost, and less functional IPhone/IPad it brought in many more possible buyers allowing Android to surge in market share. Without Goggle’s operating system, the ramp up of other vendors would have been much slower.

    Apple’s IPhone and IPad growth in the future will be slower. It will take a few years before customers stabilize the time between upgrades. For North America, people have been holding onto their IPhones for less than two years. This ownership duration is increasing. I don’t plan to upgrade until after two years. Apple’s growth will rely more on bringing in new customers, which it does by getting existing Android customers dissatisfied with their previous purchase. Eventually this will lead to increase market share that the Mac is experiencing.

    Apple is not targeting a specific market share so much as they are targeting a steady increase in Apple customers. Specifically the total user base.

    Apple’s stock is also suffering from a highly unusual calendar year 2012 that went into the first quarter of 2013. Margins were extremely high and product releases dates and supple constraints produced a very high revenue first quarter of calendar year 2013. As such, analysis were disappointed by the guidance on this current quarter.

    If you look at the calendar as a whole, Apple has grown revenue above 5.5% from 2013 to 2012. If you include their deferred revenue policy they just started, the growth would be more like 9-10%. If margins stabilize at 37%, I would expect this growth to translate to EPS growth also.

    I expect that with Apple’s eco system and customer satisfaction that a revenue growth rate of 5-10% can be sustained for many years. If all future income is returned to investors via dividends and stock buybacks, this will result in a return on investment of 10-20%. Not to bad for an extremely large company. I don’t expect Apple to keep growing their cash reserves. When you add in new opportunities in home automation, IOS auto integration, apple TV growth/possible TV, bio medical watch, and other computing devices that will add additional product categories, the future is very bright for Apple.

    An example of revenue growth rates that can be accelerated by dividends and buybacks, McDonalds grows revenue by less than 4% per year. They also return all income to investors via dividends and buybacks. When you run the numbers of dividend and stock increases for a P/E of 16.5 you get a 9% annual return on investment. The buybacks drive the stock to a higher rate than 4% revenue growth and this helps drive the 9% return on Stock and dividend value.

    Since Apple’s revenue growth is going to be higher than 4% and Apple’s P/E is lower, this approach to sending money back to the share holders will result in very healthy gains for the long term investor.

    In addition, Apple’s huge cash reserves will eventually be returned to the stock holder, but only after the US government lowers that unfairly high corporate tax rate. When you combine both the corporate tax rate and the capital gains tax rate that we the investors have to pay. The government would keep over 50 cents of every dollar Apple made in other countries on products mostly made in other countries. What service did the federal government do to enable the making of this money when the share holders took all the risk. When the government wakes up and sees the unfairness of this tax system, we share holders will start to see this money. Maybe after the 2016 election. In my opinion, this is the single reason that Apple is not moving their money back to the US and return this money to the share holders. This policy benefits long term investors rather than short term investors like Mr. Icahn.

    • stefnagel

      Great post. As you suggest, Apple needs to position their stock to reflect value beyond simple growth.

  • adding gross margins to your table would paint a “truer” picture of financial results

  • willo

    McDonalds has a PE of 17. It has a very sustainable business, and you can expect a tiny bit of growth for years to come.

    Apple has a PE 12,7. It runs the risk of losing parts of its business if they become unpopular very quickly, clearly it carries more risk. That being said it also has the possibility of turning out not one but several new breakthrough hits that will instantly grow their business. Obviously WS does not take unseen products into account, they must calculate what they can see, hence they are in a dying business.

    Only once Apple does release something, and it becomes popular will WS follow.

    I´m absolutely certain that whatever Apple does come out with, will end up being immensely popular – maybe more than iPhone/iPads. iLife armband with breakthrough medical uses would be perfect.

    • Kizedek

      This has often been dissected by Horace, and he seems well aware of everything you have said — just read a few past articles.

      The issue is not that anyone (here) wishes WallStreet to take into account unknown, un-released Apple products. The issue is that Apple is valued as little more than its cash; as though it won’t grow at all, despite its excellent track record. It’s almost as though WallStreet expects Apple to never sell a single product tomorrow.

      Nevertheless, innovation, popularity and future products and disruptions aside… Apple is an extremely well-run business, and it is extremely transparent from a business perspective. In contrast, as Horace repeatedly shows, the likes of Amazon and Google have very vague business models, are less than transparent, and may well be vulnerable to far more competition and forms of disruption than most people realize. At the same time, there will always be a “high end” for Apple, one which is interested in product differentiation.

      It’s the relative PEs and valuations between Apple and the likes of Amazon and Google that are suspect. The issue isn’t so much that Apple is somehow “penalized”; it’s that the others appear to be given some kind of pass. Yet, Apple’s supposed mystery is not so mysterious at the business level to anyone who cares to look, AND the businesses of Amazon and Google ARE actually far more mysterious, and perhaps more ephemeral, than anyone is admitting. This is the Great Wall Street mystery.

      • charly

        Apple has been twice close to death. Has experienced the death of its largest market (ipod) and its current largest market (Iphone) is close to saturation and has a very large network effect, something a minority player like iphone is missing. It is also building a very expensive head office so it is no wonder that Wall Street isn’t optimistic.

        Google’s business model isn’t a mystery. It is ads on Google, Google Maps, Youtube, Gmail, Third parties & Android and the Android play store

        Amazon business model is clear. If it is profitable is less clear but it has high barriers of entry and the need to be American to enter its largest market (not official yet but it will happen the moment any foreign party tries it)

      • Kizedek

        Oh, please. Apple has moved on and transformed. We have yet to see MS, Yahoo, or a dozen others do that. We have yet to see HP back to its former stature. We see PC companies failing or going out of business every month.

        High barriers to entry can lead to disruption.

        It’s like you come here week after week but don’t read anything with comprehension.

      • charly

        You don’t need to change your business if you don’t hit walls. Apple and its focus on the high end always hits walls every few years

      • walls

        What business has high growth and doesn’t “hit walls”?

      • StevenDrost

        Not just highend. IPod shuffle/nano? Mac Mini?

      • charly

        IPod shuffle/nano and Mac Mini are high end in their field. You can get mini competitors for much less and the same was true for nano when people still bought mp3 players

      • StevenDrost

        In all fairness the IPod is dying because Apple killed it with the IPhone which cost more than twice as much. There are worse fates.
        If you’ve ever been to Cupertino then you would understand that they desperately need a new campus.
        As for Google, how do you explain Nest, Boston Robotics, buying and then selling Motorola or just about any of their acquisitions?

      • charly

        The type of people who bought ipods are not the type of people who buy iphones

      • tmay

        Yep. After a decade, the iPod is dying.

        Good thing that Apple made and kept almost all of the profits in the music player market.

        Lather, rinse, repeat.

      • obarthelemy

        Apple is dependent on reliably releasing desirable gadgets. If they lose the “magic”, their sales can falter very quickly (see RIM, Nokia, …). Google and Amazon don’t have that issue, since they’re logistics-driven, not product-driven businesses.

      • Davel

        Amazon grows revenue but loses money or barely break even. Hardly a 1300 PE stock

        Google owns ads. And so they are sustainable.

  • iObserver

    Horace, there seems to be an error in your scorecard. The S&P 500 earnings did not increase by nearly 800% in either Q1 2010 or Q2 2010 or even close to that over the last decade.

  • Hamourabi

    Apple and competition are usually compared in term of unit share, sometime in term of profit share, would not it be interesting to also compare in term of revenue share which seems more relevant than unit share when there is no homogeneity within a product category ( i.e. phones, tablets …)? Does Horace have some chart with this perspective?

    • graphex

      But who really is Apple’s competition in their major segments of:

      – smartphones priced above say $400
      – tables priced above say $400
      – personal computers priced above say $800
      – ecosystems serving users of these three types of devices

      The answer is noone is Apple’s competition. Someday Wall Street may figure this out. Think it would be clear when a company has over 500 million ecosystem users and generates 3+ Billion dollars every month.

  • ronin48

    A little off topic but somewhat relevant.

    Today’s announced $14 billion dollar share buyback over the past two weeks amounts to about 27.6 million shares at the volume weighted average price of $507 over the past 8 days (N.B. Apple average price was probably less though…)

    This was all effectively done just before the ex-dividend date. So besides reducing outstanding shares (and thus raising EPS) it saved Apple over $84 million in dividend payments due next week alone.

  • jameskatt

    The markets do not reflect common sense or wisdom. They reflect stock manipulation, greed, fear, and irrational exuberance as stated by Warren Buffettt.

  • Canada Bob

    Horace, it would be great if you would provide a line chart for the revenue growth so that the users can see what the analysts and brokers are looking at in their valuations of AAPL. The numbers are a bit erratic but the fact that you portrayed this data as a number chart as opposed to a visualization smacks of smoothing over the ugly fact that growth has slammed on the brakes and the market is reacting rationally to that fact. The red numbers help a lot but a chart would be more valuable.