Monday, February 27, 2012

Instant Alert: THE APPLE INVESTOR: Apple Could Be Running Into The Law Of Large Numbers


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February 27, 2012
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THE APPLE INVESTOR: Apple Could Be Running Into The Law Of Large Numbers

by Heather Leonard on Feb 27, 2012, 12:29 PM

The Apple Investor is a daily report from SAI. Sign up here to receive it by email.


Math Pic EquationAAPL Recovering From Morning Sell-Off
Stocks are retreating following last week's four-year high as fears that Europe must commit more money to fight the EU debt crisis weighs on investors. Shares of AAPL are staging a recovery. Investors continue to be focused on iPhone adoption; update to the iPad; market share growth of the Mac business; further penetration in China and emerging markets; the evolution and potential re-conception of Apple TV; and platforms such as Siri, iAd, iBooks and social (Ping). Shares of Apple trade at 9.6x Enterprise Value / Trailing Twelve Months Free Cash Flow (including long-term marketable securities).

The iPhone Getting Crushed In Countries With No Carrier Subsides (Business Insider)
In countries other than the U.S., carrier subsidies are lower or non-existent, making the iPhone just too expensive to compete well. This is especially true in Europe, where some economies are in a recession, and consumers are strapped. In countries where subsidies were eliminated, handset sales declined 10%. If the subsidy model begins to break down, Apple could be forced to cut prices, thus eating into its margins.

Apple Is In Excellent Hands With Tim Cook (Business Insider)
Henry Blodget at Business Insider thinks Tim Cook is doing a great job, but his opinion has much more to do with the way Tim is handling external communications. Apple has faced 3 potential crises in the past 6 months, and Tim has handled them all superbly. He appears to have exactly the right mix of self-confidence, passion, commitment and competence needed to follow one of the toughest acts in history. That's just one perspective, but we'd love to hear other thoughts.

Apple Is Running Into The Law Of Large Numbers (The New York Times)
Apple is so big, it’s running up against the law of large numbers. To increase its revenue by 20%, Apple has to generate additional sales of more than $9 billion in its next fourth quarter. Comparatively, a company with $1 billion in sales has to come up with just another $200 million. The law of large numbers may explain why Apple stock looks like a bargain. The ratio of its share price to its earnings is less than 11x, well below the market’s average P/E ratio of about 13x. Do you think Apple's relative growth will slow this year?

iOS Surpasses Android In Mobile Ad Impressions (AppleInsider)
The launch of the iPhone 4S helped Apple's iOS surge 12-percentage points and surpass Google Android in mobile ad impressions for the month of January in North America, according to InMobi (the largest independent mobile advertising network). Apple's share of available ad impressions in North America grew from 23.2% in October of 2011 to 35.3%while Android loss 3.2 points, finishing in second with 32.7%.

Apple Is Transferring The Wealth From Carriers To The Appliance Makers (Bloomberg)
Paul Kedrosky, author of the Infectious Greed Blog and a Bloomberg contributing editor, talks extensively about the shift from landline and baseline to wireless and what that means for the carriers. Apple is the giant wealth transfer from the likes of AT&T, selling the appliances that consume all this bandwidth. He also discusses how Apple may use its $97.6 billion in cash and investments. Don't expect a large acquisition but a dividend or sizable buyback is more likely.

Apple Likely To Do Something With Its Cash This Year (Bloomberg)
Robert Kaplan, a professor of management practice at Harvard Business School and a former vice chairman at Goldman Sachs, believes that you will see a change at Apple with Tim Cook at the helm. The company wants to me more sensitive to governance and the majority vote is a good example of this from this past shareholders meeting. In terms of the cash, there are a lot of ways they could deal with it. Keep it simple and retain the flexibility like a regular dividend and an open market buyback.

Apple Had The Best Selling Smartphones Last Year (comScore)
Apple's most current iPhone models were the three best-selling smartphones in America in 2011, with the iPhone 4 beating out the legacy iPhone 3GS and new iPhone 4S to become the biggest seller of the year. The iPhone 4 was the most acquired smartphone in the U.S. and the EU5, with the two-year-old iPhone 3GS taking second place in both regions most likely due to the device's low price-of-entry, followed by the iPhone 4S which didn't launch until October and was in short supply.

Why Would Apple Want Office On The iPad? (iMore)
Some argue that having Office on the iPad could pull people away from Apple’s existing iWork software. Why then would Apple want Office released on iPad when it would eclipse Apple’s own iWork suite with a far more established, more functional competitor? Because Apple is a hardware company. It’s what they want. They’re the guys who give iOS away for free and run iTunes and the App Store at just above cost. Office on the Mac is the perfect example. Do you prefer to subscribe to Office in the cloud over buying iPad apps?

The iPhone Accounted For Nearly Half Of All New Sprint Subscribers Last Quarter (Edible Apple)
Sprint sold 1.8 million iPhones during the holiday quarter, and of that total, 40% (720,000) were to new customers. With respect to all new customers, Sprint was able to rein in 1.6 million new subscribers. Putting everything into context, iPhone users accounted for 45% of all new subscribers, once again emphasizing the iPhone’s unique ability to lure customers into 2-year contracts.

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