AAPL Beats Official Estimates (and Crushes Pessimistic Contrarian Estimates)

Well, that answers that.

After putting up with weeks of spiralling stock prices, and even speculation about whether he's fit to serve as Apple's CEO, Tim Cook got his chance to provide us with some cold, hard facts today.

Apple always plays their hand close to the vest. But how much fun must it have been for Mr. Cook to throw the number "43 billion, 600 million" down on the table this afternoon?

In the last quarter, Apple made $9.5 billion dollars. In profit. Throw that on the pile they've already accumulated, and we're talking about a company with $145 billion in cash. 

Apple reported record revenues - $43.6 billion in sales. That's more than Wall Street expected. And it's not the kind of figure you'd expect, given all of the AAPL obits we've been reading. 

Keep in mind - this is a company that's being traded at about 5.5 times their earnings.

(That 5.5 figure leaves Apple's cash hoard out of the equation - after all, when you buy a share of AAPL, you're buying equity in the company... and also buying your share of that $145 billion in the bank.) 

A 5.5 P/E ratio... for a tech/media company... that makes the lions' share of the world's profits from computers, the overwhelming share of profits from phones and tablets, and manages to maintain more than a 37% margin on the products it sells. 

For comparison, Hewlett-Packard was just trading at around a 5.5 multiple, too, and they recently retrenched their product line to focus more on printers. Apple. Hewlett-Packard. Same cost of equity. Makes sense, right?

During this stock price tumble from ~$700 to ~$390, investors have been saying - essentially - that they believe that Apple's going to start losing money - that a dollar in Apple's hands is worth LESS than a dollar. 

I'll repeat that - at these valuations, the street believes that a dollar in the hands of Apple - the greatest moneymaking machine the world has ever seen - is somehow worth less than a dollar in Joe Investor's pocket. 

The only way that argument makes any sense, is if you believe that Apple's revenues will shrink WHILE their margins shrink, so that profits are about to seriously nosedive. 

The Apple contrarian's argument, I suppose, is that Apple used to pull 50% margins (basically unfathomably high) and now they're only making 37.5% margins (merely amazingly high), and as such, the trend is negative.... and we can expect abject ruin to set in.... well, shortly, I guess. 

I get the concept of shrinking margins and the importance of ROI. Really, I do. But there has to come a time when the concept of ROI takes a back seat to the concept of actual profit

Given two mutually exclusive opportunities, would you rather invest $500 to make $5 million in profit - or invest $5 million to make $20 million in profit? The ROI on the $500 is exponentially higher. But the guy who invested the $5M is sitting on 4 times as much money in the end. 

In Apple's case, there is a lot of actual profit to take into account when valuing the company. $145B in past profits alone, in fact.

Then, consider that revenues aren't falling - they're increasing. Even as Android phone makers finally start producing decent iPhone rivals, Apple's revenue keeps rising

So what if the margins are now only "remarkable", instead of "legendary"? The profit is still there, to the tune of tens of billions of dollars in retained earnings each year. 

There's no way this company is only worth 5 and a half times its current earnings. The Apple money machine isn't going to fall off the rails in 5 years. In fact, neither revenues, nor earnings, are unlikely to decrease in any substantial fashion at all in the next 5 years. 

Over the next 5 years, people will continue to buy iPads. They'll continue to buy iPhones. They'll continue to buy music. And Apple will continue to develop new and exciting products, and pull down billions of dollars in profit. 

As Warren Buffett recently noted, buying AAPL at this point is like buying dollars for 80 cents.

Which, I suppose, is why Apple's going to quintuple their stock buyback program, effective immediately. They know a good deal when they see it. 


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