Apple’s Fourth Quarter 2009
Much has been written about Apple’s most recent quarter and the potential price targets for Apple shares. Despite the technology treadmill, despite their growing market cap, despite all the competition, one thing is certain about Apple the company: It continues to execute. I think the first few minutes of their conference call cover their successes:
Mac Products: 3.05 million unit sales for the quarter. This represents record quarterly sales, beating their previous record set in their year-ago quarter by 440,000. Mac sales have grown faster than the market in 19 of the past 20 quarters. Sales grew at a 42% rate in their Asia-Pacific segment, and sales to educational institutions grew by 12%.
Software: The response to their Snow Leopard operating system was very strong as box upgrade sales were over double the sales experienced with their Leopard release.
iPods: 10.2 million iPods were sold during the quarter, down from 11 million sold in the year-ago quarter. Apple believes over 50% of recent iPod buyers were purchasing their first iPod. iPod touch sales grew at a 100% year-over-year rate. Apple believes they are well-positioned with their price points for the holiday season. They hold 70% of the MP3 market in the US, and market share gains continue in nearly every country they track.
Music: iTunes is the world’s largest music retailer, offering over 11 million songs, over 500,000 TV episodes, and over 7,500 films.
iPhone: Over 7.4 million iPhones were sold in the quarter, a new company record and a 7% increase over the year-ago quarter. Recognized revenue from iPhone sales was $2.3 billion during the quarter, a 185% increase over the year-ago quarter. The sales value of iPhones sold during the quarter was $4.5 billion.
iPhone Apps: Over 85,000 apps are available for the iPhone, and there have been over 2 billion downloads to date.
Retail: 15 stores opened during the quarter, bringing the total to 273. Average revenue per store was $7.1 million for the quarter, compared to $7.6 million a year ago. Retail segment margin was $410 million, or 22%, up from $301 million or 17.5% in the year-ago quarter.
Apple now has $34 billion in cash and marketable securities on their balance sheet, and produced $3.1 billion in operating cash flow for the quarter. For the year, they generated $36.5 billion in revenue, $5.7 billion in net income, representing 12% annual revenue growth and 18% net income growth. This despite the worst recession in recent memory.
From a valuation perspective, it all depends on how long Apple can maintain or exceed their current growth rates. I start with an operating cash flow of $10.2 billion less a billion in capital items and assume growth of 15% for three years followed by two years at 12% growth. At the end of five years, their market cap would be $310 billion ($344/share). Discounting these cash flows back at 10% results in a present value of $225 billion or $251 per share.
Apple has continued to execute their strategy in all that they do, and growth remains possible for most of their business lines and products. If this continues, there could be quite a bit of upside remaining for investors.
Disclosure: I currently hold Apple shares.
