Apple’s valuation has been discussed several times on Asymco. Apple’s relative valuation in terms of P/E ratio has not improved since the recession despite an acceleration in financial performance. As Apple seems to be getting punished for growth, we have to also ask if it is the only one.
When looking at valuation from an institutional investor or financial analyst point of view, the most common methodologies are discounted cash flow (DCF) as well as comparable company multiples. Most often, a DCF valuation is performed and cross-checked with comparable multiples. The justification for using comparable companies is the exposure to the same market dynamics including, for instance, market growth and profitability. So to understand this perspective, let us focus on a peer group valuation by looking at the average P/E multiples for the calendar quarters 1/2005 to 1/2008.
Nearly all the data on smartphone shipments is now available for the second quarter 2011. Some fragments are still not public, including ZTE and Huawei (and any others) shipments. We also have estimates for the various platforms including an estimate for Windows Phone and Bada (though not for WebOS).
This allows the following chart:
Using the traditional color scheme which separates “integrated” from “modular” vendors, the chart shows overall volume growth and how the volumes are split among vendors.
The market grew at about 73% y/y and 50% compounded over three years and 9% sequentially. The y/y growth rates for individual vendors were:
During the last WWDC Apple revealed that there were 54 million active Mac users. If we look at the history of the product we can see that it took about 5.5 years to sell 54 million Macs. If we assume therefore that the average lifetime of a Mac is 5.5 years and knowing that Mac sales generated revenues of about $73.8 billion then we can estimate the average revenues/year/mac user: $250.
Repeating the exercise with 180 million current iOS users who purchased about 200 million iOS devices and assuming a life span of 3.5 years gives the average revenue/year/iOS user of about $150.
These are recurring figures. If we assume these users are loyal then they will likely spend this amount indefinitely and each additional user will be worth a similar amount.
So, for example, if we assume that the number of Mac users reaches 100 million then we can also assume that they will generate about $25 billion/yr in recurring revenues.
Likewise, if we extrapolate growth of iOS to 500 million users then we can assume they will generate $74 billion/yr in recurring revenues.
Adding these together gives a potential recurring income level of $95 billion/yr for installed base alone (excluding iPods, Peripherals, iTunes apps/songs, and Software sales.) Today that figure is about $40 billion/yr. 
Interesting valuation exercises can follow.  It would also be interesting to perform a similar analysis for other vendors/platforms.
- Note that actual sales are considerably higher than this figure as new customers are added. These figures should be considered “baseline” sales.
- Thanks to a kind reader for suggesting this line of analysis.
According to 148apps.biz, the App Store has seen over half a million apps since inception. The number of available apps, according to Apple, is now 425k. (148apps claims 402k apps available in the US store.) The history of the App store catalog is shown in the following chart (showing both US and World-wide measures).
In an interesting new post by Appsfire, APPtrition – or why app store size does not matter that much… Ouriel Ohayon makes a good point: available is very different than accepted. When comparing catalogs it’s important to distinguish between these measures. Apps are published and then unpublished for various reasons. He calls this app attrition and details the reasons it might happen.
What makes this interesting is the contrast between attrition rates on Android’s Market and those on Apple’s App Store.
While a lot of the credit for Apple’s success is rightfully assigned to the iOS franchises, the OS X business has more than quadrupled in five years. This has happened without drastic price fluctuations. Neither holds for the overall PC industry which has seen both volume and sales decline while prices have eroded along with profitability. On top of that, growth has nearly evaporated.
Even with this success, as a percent of total value created, the Mac accounts for a mere 13% of Apple’s profit. Including software as part of the OS X franchise implies that OS X is enabling about 20% of Apple’s profits.
iOS, on the other hand, is accounting for more than 75%. These two platforms combined amount to 96% of Apple’s profits (up from 50% four years ago).
Yesterday I wrote about the growth in Android vs. iOS. The two platforms’ can be said to be enjoying healthy growth, though in markedly different patterns.
The consequences of this growth are being felt across the telecom and computing industries. There are almost 300 million platform devices in use today that were not even dreamed of three years ago. Operators are transporting petabytes more data and dozens of phone vendors are scrambling to meet demand. There are tens of billions of app downloads and hundreds of thousands of apps being sold by tens of thousands of new app publishers. There is a lot of hay being made while the sun shines.
But what about the poor saps that are funding the development? What about the shareholders of the companies behind these platforms. Are they being rewarded or punished?
The following charts tell the story:
As iPad shipment volumes increase and as the iPod touch becomes the de-facto iPod, it’s time to look at the overall split between iOS devices.
I will focus the discussion between iPhone and iOS “others” because I believe the two categories differ greatly in terms of their positioning and market strategy due to the different channels.
The company does not provide iPod touch units shipment data but it can be estimated that, based on overall iOS numbers released in September, iPod touch represents approximately 50% of iPod units sold.
If we put all we know together about volumes, we have the following chart:
As the highly profitable iPhone makes up an increasingly larger proportion of Apple’s sales, the overall gross margin would be expected to grow.
Sure enough that’s what’s been happening.
The gross margin percent, which measures the direct or variable costs of production vs. price, shows a healthy rise in the last five years from slightly below 30% to around 40%. The Operating Margin, which also includes the overhead or fixed costs like R&D and SG&A, shows a similar rise, reaching about 30%.
Margin expansion while sales quadruple is a good indicator that a company is producing real value not just trading sales volume for profit.
The iPhone and iPad generated $15 billion of revenue last quarter. In addition, iPod touch generated about $2.3 billion, implying that iOS based devices were responsible for sales of $17.3 billion.
To put that in perspective I drew this chart which shows not only the sales by products but a rough representation of share of the two OS variants Apple uses to power its products.
Thanks to a reader for asking this question: “Wouldn’t it be more telling to look at the monthly rate of downloads / device at any given time?”
Yes it would.
Here’s what can be derived based on download rates and installed base of devices.