Apple 1Q 2008 Results: Record $1.58 Billion Profit

[Lord Sam]

Wow!

Oh my god! That's incredible. I can't belive that after that announcement, their stock continues to plummet! I guess it's just the weak market, but you'd think that a company like Apple with all their great announcements, would be able to beat the market, and rise. But no. I wonder why

 

[digitalbiker]

AAPL is victim to a decent report in a horrible market.

That just isn't true! You can't blame this all on the down market. Apple has fallen from above 200 in December to under 125 in January. That drop is enormous. It far exceeds the recent down turn of most stocks.

Investors just believe that Apple has performed as well as they are going to perform and are not a good buy for the future.

They might be right but then again if AAPL over performs next quarter then we will see a reversal. I only wish I would have sold my stock at 200.

 

[macshark]

Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.

Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)

It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...

 

[surferfromuk]

Irrespective of the share price Apple still makes the best products in the market and they will continue to sell in high volumes to people who understand that.

Steve jobs and all the Apple employees will carry on busily creating wonderful things and the 8-9% of the population who buy them will keep doing so.

If anything I'd say the lower end of the PC market is more vulnerable because it's people who buy cheap Dell junk that are going to slow down there buying!

So fear not Apple will be fine - especially since they are debt free with a phenomenal $18billion in cash!

It's actually like a 'big sulk' that Apple haven't released iPhone II if you examine it closely...well, they will soon enough...

 

[bigpics]

The stock market ... is a shell game so that rich folks can fleece poor folks. There is no logic, just greed.

Wake up!
Apple 1Q 2008 Results: Record $1.58 Billion Profit.

Let's see... ....compare stock/bond market funded businesses from say a century ago... ....in terms of the a) total shareholder wealth, b) number of people employed in them, c) the average income (adjusted for inflation) of those workers, d) the longevity, health and free time of both shareholders and employees -- which, of course, is based largely on the development and implementation of technologies developed in that free market system.

No wait, do the math. I'll wait.

Now that those who want to return to the economy, work weeks, child labor and union laws, general longevity and other amenities of 1908 have left, I'll continue......

Either that stock market's one damn pretty good greedy shell game or those "poor folks" were hanging on to a lot of fleece: enough to make the (yes, Virginia, still imperfect) world hugely healthier and wealthier on balance than it's ever been. (I knew you couldn't trust that fleece-hoarding lot.)

But I do hope the golden fleecing continues, albeit if interrupted now and again by periods of overexpansion followed by painful corrections.

Investing in homes and stocks is not only NOT a shell game if practiced patiently and prudently -- and in the case of stocks by having a portfolio that's properly (and simply) diversified -- but in fact these two classes of assets have returned more wealth to those who own and hold them than any others over the long term. Period.

This does not apply to the type of investor (small speculator) who finally got excited about AAPL and dumped in the family jewels at somewhere north of $180 and who has just bailed today, but to the person who patiently assembles a small collection of mutual funds divided between thousands of companies of all types and sizes and then keeps adding to it over their working life.

In fact Vanguard, Fidelity and many others have single fund products that do exactly this in one combined investment -- called variously life-cycle funds, target retirement date funds, asset-allocation funds, etc. Just invest, add periodically and otherwise, set and forget until retirement.

Those who aren't pros (and even some pros) who glom on to hot stocks are not being forced by the greedy to invest in this manner, it's their OWN greed (and lack of homework in what to invest in) to "get rich quick" and then their subsequent panic when the run up inevitably corrects.

Shell game, my sweet patootie. The economic ignorance -- and political soft-headedness -- of many of the technologically sophisticated never ceases to amaze me.

 

[IJ Reilly]

It doesn't help that the financial analyst community is currently in a very pessimistic mood, and Apple stock just got hammered down to $120 range due to lower iPod unit sales (despite the fact that ASP went up 72%) and the conservative outlook for the next quarter. Still, with $3 per share in actual (as opposed to reported) earnings, Apple is on track to meet earnings of $6-8 per share per year. One would think this might justify a stock price of a lot more than current value in the long term...

Sure. What I'd watch is the analyst targets for one-year share price. If these start being adjusted down sharply, then I would say the fallout could be somewhat justified. If they don't, then what we're seeing is the emotions of the market being played out.

 

[phgreer]

Oh my god! That's incredible. I can't belive that after that announcement, their stock continues to plummet! I guess it's just the weak market, but you'd think that a company like Apple with all their great announcements, would be able to beat the market, and rise. But no. I wonder why

Don 't complain! Buy!

 

[l4t13]

That just isn't true! You can't blame this all on the down market. Apple has fallen from above 200 in December to under 125 in January. That drop is enormous. It far exceeds the recent down turn of most stocks.

Investors just believe that Apple has performed as well as they are going to perform and are not a good buy for the future.

They might be right but then again if AAPL over performs next quarter then we will see a reversal. I only wish I would have sold my stock at 200.

I know it has dropped more than the market; however, when the market is rising apple outperformed.

I think apple was doomed if they didnt smash estimates. Decent reports aren't cutting it right now.

If you hold long term, I'd continue to hold. I am a short term trader though so from the way apple stands now, I wouldnt trade it. I have never traded it though so I am by no means an expert on aapl.

 

[gwangung]

Probably the single most important fact that is being ignored by most investors is that Apple is significantly underreporting their earnings. Reported net profit is $1.56B or $1.76 per diluted share. Positive cash flow from operations is $2.76B or $3.11 per diluted share.

Basically, there seems to be about $1.2B difference between the reported net profit and the actual cash flow. What is the source of this difference? My guess is the deferred iPhone revenues result in about $500 in "deferred profit" for each iPhone sold. This profit will be recognized over the next 8 quarters instead of the current quarter. If Apple can keep selling iPhones at the rate of approximately 2.5 million units per quarter, we will see an incremental 125M profit each quarter for the next 7 quarters. This means there will be close to an additional $1B net profit from previous quarters in two years, assuming that the iPhone unit sales stay flat and Apple's profit margins for iPhone also stays flat. (The more realistic scenario is higher unit sales and lower profit per unit sold, but the overall profit will most likely balance out.)

Nice point (this is in line, isn't it, with that $20 charge they're tacking on to the Touch and all....)

 

[aliquis-]

I had to vote negative on this one because Apple should care more about their costumers than their share holders and fix the prices.

 

[luminosity]

That just isn't true! You can't blame this all on the down market. Apple has fallen from above 200 in December to under 125 in January. That drop is enormous. It far exceeds the recent down turn of most stocks.

Investors just believe that Apple has performed as well as they are going to perform and are not a good buy for the future.

They might be right but then again if AAPL over performs next quarter then we will see a reversal. I only wish I would have sold my stock at 200.

I learned that a long time ago, and I'm only 26. When you buy something relatively low, and it gets to that kind of extreme price, you should either sell immediately or have already sold well beforehand. Don't ever get greedy (not to say you were, but when it gets that high, there's really no point in holding on to it).

 

[IJ Reilly]

I learned that a long time ago, and I'm only 26. When you buy something relatively low, and it gets to that kind of extreme price, you should either sell immediately or have already sold well beforehand. Don't ever get greedy (not to say you were, but when it gets that high, there's really no point in holding on to it).

There's no such thing as an "extreme price" in the stock market.

The decision to sell is the hardest in all of investing. Ultimately, it must be a matter of how you feel about a company's prospects. If you believe they've peaked, or you have another need for the money, or a better place to invest it, sell. Otherwise, you're a damn fool to sell to a stock just because it reaches an arbitrary price. That's not investing at all, it's trading.

 

[luminosity]

There's no such thing as an "extreme price" in the stock market.

The decision to sell is the hardest in all of investing. Ultimately, it must be a matter of how you feel about a company's prospects. If you believe they've peaked, or you have another need for the money, or a better place to invest it, sell. Otherwise, you're a damn fool to sell to a stock just because it reaches an arbitrary price. That's not investing at all, it's trading.

I think of it as being cautious or conservative. If you bought a stock for $25, and it reaches $150 or $200, there's no point in holding on to it any further. It's likely overvalued at that point, or will probably end up losing value at some point for whatever reason (market decline, company decline, both, etc.). And probably sooner rather than later. Google-esque companies are extremely rare, as we all know, and when something reaches extreme highs, best to sell.

At $200, there's really no point in holding on to Apple stock. Sell it, reap the profit and invest in something else, or just wait until Apple share price declines, and then buy more and do it over again.

I'm not a fool for selling my Apple stock at $150 or 200 if I bought 200 shares for $20 (not that I did that, but some have). I will have made tens of thousands of dollars in profit, for use in other investing or personal use. When the price declines, it's just an abstract, academic problem that doesn't concern me. I'll have already made my profit. There are so few companies able to stay at anything more than $100 for anything more than a short while.

 

[IJ Reilly]

I think of it as being cautious or conservative. If you bought a stock for $25, and it reaches $150 or $200, there's no point in holding on to it any further. It's likely overvalued at that point, or will probably end up losing value at some point for whatever reason (market decline, company decline, both, etc.). And probably sooner rather than later. Google-esque companies are extremely rare, as we all know, and when something reaches extreme highs, best to sell.

At $200, there's really no point in holding on to Apple stock. Sell it, reap the profit and invest in something else, or just wait until Apple share price declines, and then buy more and do it over again.

I'm not a fool for selling my Apple stock at $150 or 200 if I bought 200 shares for $20 (not that I did that, but some have). I will have made tens of thousands of dollars in profit, for use in other investing or personal use. When the price declines, it's just an abstract, academic problem that doesn't concern me. I'll have already made my profit. There are so few companies able to stay at anything more than $100 for anything more than a short while.

Again, there's no such thing as an "extreme price." The price of any company is governed, over the long run, by how much money they make. Apple's profits have soared along with the stock price. The reason you don't see many stock prices over $100 is not because they drop, but because the shares are split. This changes the value of the company by $0.

Of course there's a point to holding, no matter what price a stock achieves, if you believe the company's prospects are favorable. This is the only reason to buy a stock in the first place. Sell if you need the money or believe it's better invested elsewhere, but not because it reaches some arbitrary price.

What you suggest is not investing, it is trading, and certainly not conservative. Few know how to trade successfully. They do it full-time, and guess wrong quite often. Amateurs who try it are begging to get burned. Buying what you know and holding it for as long as you believe the stock will perform well over time is the only sensible strategy for investing.

 

[luminosity]

I simply disagree. When something reaches a share price of $200, ditch it. Take what you've made and go elsewhere. I agree about holding things long term, but that often depends on more normal growth patterns for the average company.

I don't for a minute believing in specifically investing for doing that sort of thing regularly, or even at all. But, it seems to me that if share price goes up high enough, there's little point in hanging on to it. It will eventually go down and your stock will lose value as a result of that. Or maybe I've just seen too many sharp drops in my adult life already.

 

[IJ Reilly]

I simply disagree. When something reaches a share price of $200, ditch it. Take what you've made and go elsewhere. I agree about holding things long term, but that often depends on more normal growth patterns for the average company.

I don't for a minute believing in specifically investing for doing that sort of thing regularly, or even at all. But, it seems to me that if share price goes up high enough, there's little point in hanging on to it. It will eventually go down and your stock will lose value as a result of that. Or maybe I've just seen too many sharp drops in my adult life already.

You seem to have some completely erroneous ideas about share price and what it means. The dollar price of a share is effectively completely arbitrary. There is no such thing as "high enough." A company can elect to split shares on a routine basis (something Apple used to do), or not -- but either way this does not in any way, shape or form have an impact on the value of your investment, let alone whether the shares are at any time "high enough."

I've held onto most of my AAPL shares for nearly 11 years. They've gone up, they've gone down. But overwhelmingly, they've gone up. It would never at any time have been a good decision my part to sell, unless I had some premonition about when it was going to peak and when it was going to bottom out. Good luck with guessing that right. More often than not, you'll get the fuzzy end, timing it all wrong, and you'd have been better of holding. Again, I am describing the difference between investing and trading.

 

[luminosity]

I'm afraid my personal experience simply does not hold up to what you're saying. I'm sure you're right in most cases, but my experience has shown me differently.

When you see money disappear in just a few months and never come back, you get the idea that maybe it would have been better to take the gains you had and then move on. No amount of holding on has seen AOL/Time Warner improve its fortunes since 2001, or Sun Microsystems (tiny improvement, but vastly far away from its peak before the tech bubble exploded).

Why buy anything at all if you're not going to eventually sell it for profit? To what end do you hold stock in a company? I just don't see the point in it. I'm not talking about day to day trading, but eventually, there must come a point where you're not going to get much more by holding on and anything more is diminishing returns at best.

 

[coolant113]

What an amazing company!!! go apple!!! keep up the good work!!

 

[digitalbiker]

You seem to have some completely erroneous ideas about share price and what it means. The dollar price of a share is effectively completely arbitrary. There is no such thing as "high enough." A company can elect to split shares on a routine basis (something Apple used to do), or not -- but either way this does not in any way, shape or form have an impact on the value of your investment, let alone whether the shares are at any time "high enough."

I've held onto most of my AAPL shares for nearly 11 years. They've gone up, they've gone down. But overwhelmingly, they've gone up. It would never at any time have been a good decision my part to sell, unless I had some premonition about when it was going to peak and when it was going to bottom out. Good luck with guessing that right. More often than not, you'll get the fuzzy end, timing it all wrong, and you'd have been better of holding. Again, I am describing the difference between investing and trading.

I agree with you! AAPL has been a great stock to hold over the past 8 years. Thats about how long I have held mine. I like their products and when OSX was announced I new it was going o be a success, along with the new fleet of products.

Just exactly figuring out when to sell and buy is difficult with Apple stock. If you would have asked me a year ago, I would have said $100.00 was high. However I held on and it climbed over $200.00. Go figure.

Even though AAPL stock has fallen, I still think it is a good hold because AAPL has consistently outperformed the market.

How can luminosity know that $200.00 is too high. In a few months AAPL could outperform it's targets, the recession may not be as deep as thought and AAPL could hit $250.00

 

[luminosity]

How can luminosity know that $200.00 is too high. In a few months AAPL could outperform it's targets, the recession may not be as deep as thought and AAPL could hit $250.00


That would be terrific if it happened. Just one minor thing: What would you really gain if it went that high? Is the opportunity cost really worth it to you? I'd rather sell at $150 and be glad I did well than hoping the company kept going up up up.

I think that's the kind of "more more more" approach that's gotten the economy in such perilous shape. It's what drove the housing market to such insane levels. Your house might be worth $400K after buying it for $300K, but hey, if you wait longer, it might be $500K! It's just not realistic.

 

[Hutch98R1]

I just placed an order!

After reading all this, ULTIMATELY I decided:
I like Apple and their products
$18B in cash is a lot of money
I think they are on a great path in the future

Yes, $140 may still be a little high, but I don't think it still overrated and would consider it a decent buy. If it drops more...fine. It will rebound. I am in it for the long run.

 

[digitalbiker]

How can luminosity know that $200.00 is too high. In a few months AAPL could outperform it's targets, the recession may not be as deep as thought and AAPL could hit $250.00


That would be terrific if it happened. Just one minor thing: What would you really gain if it went that high? Is the opportunity cost really worth it to you? I'd rather sell at $150 and be glad I did well than hoping the company kept going up up up.

I think that's the kind of "more more more" approach that's gotten the economy in such perilous shape. It's what drove the housing market to such insane levels. Your house might be worth $400K after buying it for $300K, but hey, if you wait longer, it might be $500K! It's just not realistic.

It's not about greed or "more more more". It's about investing vs. trading. I invest long term because in 10 or 15 years when I sell I want to beat inflation and/or the long term performance of S & P 500.

Sure I could buy, sell, buy, sell, buy, sell but it takes too much research and time and even then most of the time you end up losing as much as you make. Generally I invest long term in a large diversified portfolio and occasionally I buy some of my favorite stocks to hold because I like the direction a company is headed.

 

[luminosity]

It's not about greed or "more more more". It's about investing vs. trading. I invest long term because in 10 or 15 years when I sell I want to beat inflation and/or the long term performance of S & P 500.

Sure I could buy, sell, buy, sell, buy, sell but it takes too much research and time and even then most of the time you end up losing as much as you make. Generally I invest long term in a large diversified portfolio and occasionally I buy some of my favorite stocks to hold because I like the direction a company is headed.

I do understand all that, and it's very sensible.

Having said that, if you wait 10-15 years, do you think selling your Apple stock then would net you more than it would if you sold it at $200?

I think companies like Apple (at least in the past couple years) are exceptions to the sensible and reasonable rules of investing you and others have mentioned, and thus require a somewhat different approach.

 

[IJ Reilly]

I do understand all that, and it's very sensible.

Having said that, if you wait 10-15 years, do you think selling your Apple stock then would net you more than it would if you sold it at $200?

I think companies like Apple (at least in the past couple years) are exceptions to the sensible and reasonable rules of investing you and others have mentioned, and thus require a somewhat different approach.

The problem with your argument is that it is predicated on knowing when a stock has peaked. Failing that knowledge, you have to rely on more general knowledge about a company's future propspects. I never said "never sell." In fact I clearly set out criteria for when it makes sense to sell.

 

[luminosity]

The problem with your argument is that it is predicated on knowing when a stock has peaked. Failing that knowledge, you have to rely on more general knowledge about a company's future propspects. I never said "never sell." In fact I clearly set out criteria for when it makes sense to sell.

But that itself is predicated on caring on having the stock whenever it does peak. If that doesn't matter to me, I can be happy with a relatively large profit, even if it isn't the absolute most I could have made later on.

To me, one criteria would be to sell when the company's stock price goes well in excess of record prices (or a price not hit in many, many years). Or just goes well above what seems reasonable (subjective, of course) for the time.