Analysts Predict Apple Will Report Single-Digit Earnings Growth in 1Q 2014

[IJ Reilly]

I was once told by a rather wise (and very successful) man: "If the analysts tell you that the money your company has in the bank is a problem, I can tell you that it is a very good problem to have".

All the purchases that Apple made have been made to become a better Apple, Inc. How would owning Netflix or Twitter (or Adobe or Yahoo) make Apple a better Apple? It wouldn't.

We agree, they wouldn't. Whether it's for better or worse in the end, Apple doesn't behave like other big companies. They are all about growing their own tech and remaining focused on what they do best. The bigger they get and the more money they salt away, the more the pressure grows on management to make the big, traditional moves. Usually this means going after other large companies and pursuing that illusive thing called "synergy" in corporate-speak. Often they up end badly. I'd prefer to see Apple's unique corporate culture play out.

 

[SusanK]

Can someone explain how Apple was able to become the most valuable publicly traded company in the world without a large scale acquisition? Apple's largest acquisition was NeXT for around $400M.

NeXT acquisition brought Steve back.

 

[gnasher729]

The funny thing is that Apple doesn't really care about their stock price. Of course they have to act like they feel bad for investors and they try to please them. Ultimately, it's the greedy and unrealistic investors who saw the iPod, iPhone, iPad and thought this trend would continue forever.

Apple makes great products. But they don't make many of them. If investors would realize this reality, then we would avoid this whole "apple is doomed" idiocy.

Many people have realised that "caring about the stock price" isn't actually the best way to increase the stock price in the long term. Look at Apple's share price development in the last ten years. While Apple's management really didn't do anything with the intent of increasing the share price, their actions to do what they actually felt to be important _did_ increase it. Other companies have gone bankrupt by "caring about the stock price", because there are so many decisions you can make that help the share price in the short term, but are negative for the company in the long term. Worst case are companies that increase profits by cutting development. Works very nice for a year or so until you go out of business.

 

[synergy]

Analysts lol

Instead should be called analinguists since they are gifted in speaking BS.

 

[Plutonius]

People keep saying Apple needs to do a big acquisition. Jim Cramer over at CNBC keeps pushing Apple to buy Twitter or Netflix. Can someone explain how Apple was able to become the most valuable publicly traded company in the world without a large scale acquisition? Apple's largest acquisition was NeXT for around $400M.

I'd rather see Apple spend their cash on the supply chain side and targeted acquisitions to fill areas of weakness. How often do large scale acquisitions work out that well anway? AOL Time Warner was a disaster. HP and Compaq pretty much too. I doubt Google's valuation is where it is today because they spent $12B on Motorola Mobility. And did Microsoft's acquisition of Skype really do anything for that stock?

An acquisition could boost the share price in the short run. In the long run, a large acquisition would probably not help (and a good chance of hurting) the share price. When looking at a stock analyst, you have to consider if they are looking for short term or long term gains.

 

[kaylerrific]

I always found stock prices really odd. apple is doing so well and yet it seems like prices go up and down depending on completely irrelevant factors!

 

[Renzatic]

...Usually this means going after other large companies and pursuing that illusive thing called "synergy" in corporate-speak.

Instead should be called analinguists since they are gifted in speaking BS.

Found him! He was here all along!

 

[Doc C]

To those who suggest acquisitions, remember that the most valuable assets are often the people. Apple has a history of buying small companies in part to acquire their expertise and skill set (and patents). This is generally much more valuable than a large buyout, although perhaps a bit riskier, and often less visible in the stock price.

 

[flux73]

Apple will likely make shareholders cry tears of blood just like they usually do on earnings because of their insistence on hoarding every penny they make instead of using it to expand into new businesses. Only companies like Google and Amazon go up 10% to 15% on earnings because they're always looking out for their shareholders by trying to get every ounce of value out of the money they make.

Tim Cook makes me sick by smiling and giggling about how Apple did just peachy-dandy selling awesome products while the share price tanks.
Dammit, Cook, get a freaking clue. Wall Street absolutely hates Apple and especially you because you're not one-tenth of the man Steve Jobs was. Google's 3 Stooges of Schmidt, Page and Brin are tearing Apple a new butt canal day in and day out with Android which must be up to at least a hundred million new activations a day.

Bought shares at $705 did we?

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People keep saying Apple needs to do a big acquisition. Jim Cramer over at CNBC keeps pushing Apple to buy Twitter or Netflix. Can someone explain how Apple was able to become the most valuable publicly traded company in the world without a large scale acquisition? Apple's largest acquisition was NeXT for around $400M.

I'd rather see Apple spend their cash on the supply chain side and targeted acquisitions to fill areas of weakness. How often do large scale acquisitions work out that well anway? AOL Time Warner was a disaster. HP and Compaq pretty much too. I doubt Google's valuation is where it is today because they spent $12B on Motorola Mobility. And did Microsoft's acquisition of Skype really do anything for that stock?

I agree. As a shareholder, I'm happy to see Apple not senselessly flushing money down the toilet just because they can. At first I wasn't happy about Nest being bought by Google rather than Apple, but then I realized, $3.2 billion is a LOT of freaking money for a company that basically makes a thermostat with WiFi in it. Sure it's nice, but I don't think it's beyond Ive and team to create one that's equally as nice or even better. eg The moat isn't very wide or deep. Apple can move into that market if and when they decide the timing is right.

 

[TMay]

It isn't artificial. Amazon is still trying to grow. So yes they take their cash flow and they keep putting it into the business. Yes, that results in there not being any profit.

If Amazon didn't, then the cash would either sit in a pile (like Apple) or it would have to be sent out in the form of dividends or stock buybacks. Amazon is instead investing in their growing business.

I get Amazon's business model; it's basically an online analogue of Wal Mart; create the biggest warehouse infrastructure, create the biggest online presence, drive the competition into the ditch, then raise prices and profit. But if you think about it, it's really UPS and FedEx that are the critical factors in this (see the christmas pileup), and they too are developing logistic infrastructure.

That's why Apple ships direct from China to FedEx/UPS logistics. It's cheaper than warehousing the product. Other companies take advantage of this as well.

As for Amazon's media sales, they have served there customer base, but not really made a dent in Apple's media sales. Should Apple get into payments, which seems soon, Apple would be competing head to head with other payment systems, but there might be some big advantages that Apple brings to the table.

 

[flux73]

Yes, they absolutely do expect Apple to have unlimited growth just like Google and Amazon have. In theory, Apple could if they'd just use that darn mountain of cash they're sitting on. Apple could practically start a dozen new businesses to increase revenue instead of having that money rotting in a bank collecting 1% interest. Un-freaking-believable.

You my friend, need to move to Washington or Colorado.

 

[GfPQqmcRKUvP]

I was once told by a rather wise (and very successful) man: "If the analysts tell you that the money your company has in the bank is a problem, I can tell you that it is a very good problem to have".

Apple has more money they can use. The money belongs to shareholders. Either invest it efficiently (they've proven they have no idea what to do with all the cash) or give it back so the owners can invest it into other companies that earn more than 1% ROI.

There's nothing wrong with reinvesting, quite the opposite. What I'm saying that if this happens, then the investment makes the company worth more money, so it should be counted as profit.

That's not what profit is. Your argument should be that investment should increase the present value of the future cash flows which will show up as....an increased share price.

 

[ActionableMango]

On a side note: this whole obsession with continuous growth will eventually have to come to an end. Companies and countries nowadays always pretend like everyone involved is predestined to grow and everyone believes this cycle will go on forever. In recent years, economists have started to question this mindset and now increasingly say that we (companies, and even more so countries) WILL NOT be able to continue growth indefinitely. If you believe that the "economy needs to grow" you're hearing fitful thinking. Nothing more. Does is usually grow? Yes! Will this always be the case? NO!

I don't know anyone ever stating that growth is always the case for everyone and everything, forever. I don't think this is widespread thinking at all. Economies go up and down all the time. Who thinks otherwise?

 

[GfPQqmcRKUvP]

I don't know anyone ever stating that growth is always the case for everyone and everything, forever. I don't think this is widespread thinking at all. Economies go up and down all the time. Who thinks otherwise?

Straw men.

 

[ActionableMango]

Straw men.

<sigh>

You are right of course. I should be smart enough to recognize that.

 

[TallManNY]

Well, if you buy stuff for $10 bn and sell it for $10 bn, you have no profit. If you buy stuff for $9 bn and sell it for $10 bn, you have a billion profit. If you buy stuff for $9 bn, sell if for $10 bn, and build a billion dollar warehouse and claim you have no profit, I'd say that is "keeping the profits artificially low". Whether you can legally claim to have no profits (and probably pay no taxes on profits), I don't know.

The short answer in your scenario is that they can't claim to have no profits. The warehouse that they buy for a billion dollars is a capital investment. They will be able to depreciate its value over years, but not all of it at once. Expenses can be used to offset revenue. But capital improvement costs are spread out over years (a short period of time for assets like computers, a long period of time for assets like buildings).

 

[MaSx]

I think Apple needs to take a dip, so they can rethink and reimagine. We need some magical feelings again, it's 2014 already. You can't deny, they are still selling better than any other smartphone maker regardless of the growth.

 

[IJ Reilly]

I agree. As a shareholder, I'm happy to see Apple not senselessly flushing money down the toilet just because they can. At first I wasn't happy about Nest being bought by Google rather than Apple, but then I realized, $3.2 billion is a LOT of freaking money for a company that basically makes a thermostat with WiFi in it. Sure it's nice, but I don't think it's beyond Ive and team to create one that's equally as nice or even better. eg The moat isn't very wide or deep. Apple can move into that market if and when they decide the timing is right.

Exactly. The general feeling seems to be that Google bought Nest as a way of harvesting more data about users, and I think that has to be true at least in part to justify the price they paid. Google's product is big data. Apple's product is technology. I'd like to see Apple release a complete home automation product that blows away Nest and all the others, and for them to make a big part of their pitch that they aren't using it for harvesting data. Apple could really outflank Google on that point and I wish they'd start soon.

 

[BaldiMac]

Apple has more money they can use.

In the short term.

The money belongs to shareholders.

Yep. And the shareholders choose to allow Apple to manage it.

Either invest it efficiently (they've proven they have no idea what to do with all the cash) or give it back so the owners can invest it into other companies that earn more than 1% ROI.

If only things were so simple. Giving it back would require either more debt or paying US taxes on the foreign earnings that they bring back into the country. Both of which make a "1% ROI" look pretty good.

 

[IJ Reilly]

In the short term.



Yep. And the shareholders choose to allow Apple to manage it.



If only things were so simple. Giving it back would require either more debt or paying US taxes on the foreign earnings that they bring back into the country. Both of which make a "1% ROI" look pretty good.

Actually, no. The proof is in the numbers.

Actually, no.

Actually, it doesn't. Apple can't allow money to sit overseas forever just because they'd have pay some taxes if it was repatriated. Any capital management strategy that is based primarily on tax liability is bound to be a bad one.

 

[BaldiMac]

Actually, no. The proof is in the numbers.

Proof of what?

Actually, no.

Good argument?

Actually, it doesn't. Apple can't allow money to sit overseas forever just because they'd have pay some taxes if it was repatriated. Any capital management strategy that is based primarily on tax liability is bound to be a bad one.

I never said they would allow it sit oversees forever.

I don't think "actually" means what you think it means.

 

[bobr1952]

I did my fair share to help at the Apple Store today.

 

[IJ Reilly]

Proof of what?



Good argument?



I never said they would allow it sit oversees forever.

I don't think "actually" means what you think it means.

The proof that they don't need the money is in the massive increase in retained earnings over the past few years. If they'd needed the money it would not have more than quintupled in five years.

The shareholders don't really "choose" to have the company manage the money. It isn't like another "choice" is available. All the stockholder can do is make their feelings known to the board. What the board does with that information is up to them.

Actually, it does. As in, it is the reality of the situation.

Forever is a long time. Nobody makes serious arguments based on forever.

 

[Konrad9]

And I predict, no matter what happens, tech blogs will go into their usual "Apple is dead, all hail Google" nonsense.

Are you joking? Most tech websites can't say enough good about Apple. It's how they get hits.

 

[BaldiMac]

The proof that they don't need the money is in the massive increase in retained earnings over the past few years. If they'd needed the money it would not have more than quintupled in five years.

Again, proof of what? I said that had plenty of money in the short term. You haven't said anything to dispute that.

The shareholders don't really "choose" to have the company manage the money. It isn't like another "choice" is available. All the stockholder can do is make their feelings known to the board. What the board does with that information is up to them.

I guess you are shooting for a semantic argument here. Shareholders "choose" by deciding to invest their money in the company.

Actually, it does. As in, it is the reality of the situation.

And yet, you didn't actually provide any evidence that what I said was incorrect. You simply disagreed based on semantics.