I did not plan to keep talking about Apple; but then, there is so much going on these days, I can't help it. I wrote about large cash Apple has been piling up; I also had my own advice on its use of cash. Heck, there is more advice too. Carl Icahn is not an ordinary guy of course, although he has been likened to a four-year old and to a six-year old. Icahn's history speaks of his capabilities as a successful investor what with billions in net worth. Not surprisingly, the subject matter is Apple again.
I had argued in October 2012 that innovation was imperative for Apple to continue to be in the growth territory. At that time Apple stock was trading at about $600 per share (pre-split) giving its entire equity a market value of $570 b. Today it is $639 b.
Optimism in 2012
I had also supplied some contrasting opinions about where Apple might be headed. One of the arguments was that it would trade at $1650 per share (pre-split) by 2015; that is, its equity would be worth $1.5 trillion. Well, that argument was supported by robust revenues and margins that Apple would be able to sustain due to its ability to innovate and maintain its superior technology. The numbers looked like this:
I had also supplied some contrasting opinions about where Apple might be headed. One of the arguments was that it would trade at $1650 per share (pre-split) by 2015; that is, its equity would be worth $1.5 trillion. Well, that argument was supported by robust revenues and margins that Apple would be able to sustain due to its ability to innovate and maintain its superior technology. The numbers looked like this:
iTV was estimated to be a $100 b business by 2015, and the argument went further: Apple would be a $610 b revenue company by 2015 as all its key markets start to experience hyper growth.
Whether these estimates will actually come to fruition is something that only time will tell. Nevertheless, $1500 b market value is huge, really unheard of.
By the way, Apple's revenues for 2014 reached $182.79 b. For it to clock $610 b revenues in 2015, they would have to grow by....well...you get the point.
$1 trillion as of October 2014
How about a little less optimistic, say, $1000 b market value? Carl Icahn is at it again; he is arguing that Apple stock which is trading currently at $109 per share, is actually worth $203 per share. He is supplying his estimates which look like this:
Whether these estimates will actually come to fruition is something that only time will tell. Nevertheless, $1500 b market value is huge, really unheard of.
By the way, Apple's revenues for 2014 reached $182.79 b. For it to clock $610 b revenues in 2015, they would have to grow by....well...you get the point.
$1 trillion as of October 2014
How about a little less optimistic, say, $1000 b market value? Carl Icahn is at it again; he is arguing that Apple stock which is trading currently at $109 per share, is actually worth $203 per share. He is supplying his estimates which look like this:
Icahn's estimates might appear to be much lower, but, in the context of Apple's recent performance they too seem to be far-stretched. While he is estimating large investments in research & development, he is also giving simplistic arguments that net earnings equal free cash flows available to equity shareholders. This assumes that depreciation equals capital spending and working capital requirements in future which may not be realistic.
Historical performance
Apple's revenues for 2014 reached $182.79 b, and the growth rate for the year was 6.95%.
Going by its history, it looks like the law of large numbers is showing up, and growth rate is coming down.
If we assume that Apple's revenues will increase by 6.95% (2014 growth rate) annually in the next 10 years, they would be $358 b by 2024. If they grow by 9.20% (2013 growth rate) annually they would be $440 b, but not until 2024.
For revenues to reach $610 b in 2024 (not 2015), they would have to grow by 12.81% annually in the next 10 years.
Icahn believes that Apple is dramatically undervalued; and accordingly, is pushing the CEO to use cash for large stock buybacks with the promise that he will not tender any of his 53 million shares (worth nearly $6 b). At least he wants to eat is own cooking; let's give him that credit.
I had a different idea, didn't I? Tim Cook won't listen to me though.
What is it
Is Apple really on sale, or all this is wishy-washy?
Historical performance
Apple's revenues for 2014 reached $182.79 b, and the growth rate for the year was 6.95%.
Going by its history, it looks like the law of large numbers is showing up, and growth rate is coming down.
If we assume that Apple's revenues will increase by 6.95% (2014 growth rate) annually in the next 10 years, they would be $358 b by 2024. If they grow by 9.20% (2013 growth rate) annually they would be $440 b, but not until 2024.
For revenues to reach $610 b in 2024 (not 2015), they would have to grow by 12.81% annually in the next 10 years.
Icahn believes that Apple is dramatically undervalued; and accordingly, is pushing the CEO to use cash for large stock buybacks with the promise that he will not tender any of his 53 million shares (worth nearly $6 b). At least he wants to eat is own cooking; let's give him that credit.
I had a different idea, didn't I? Tim Cook won't listen to me though.
What is it
Is Apple really on sale, or all this is wishy-washy?
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