the greatest cash machine in history? an analysis of...

THEGREATESTCASHMACHINEINHISTORY?ANANALYSISOFAPPLE

AswathDamodaran

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TheApple“Market”BalanceSheet

Assets MarketValue(inbillions)

Liabilities MarketValue(inbillions)

Operating Businesses(Smartphones,ComputersandServices)

$544 Debt $94

Cash $245 Equity $695

Total $789 Total $789

Apple’s cash balance is the largest ever held by a company.

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Apple’sCashSpigot

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Apple’sCashReturn

Apple has returned $183 billion in cash to its stockholders in the last five years, making it by far the company that has returned the most cash to stockholders over any five-year time period.

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TheCashBuild-up

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TracingApple’svaluation(oratleastmyviewofit):June2012

¨ Thesetting:InmyJuly2012valuation,whereIlookedatApplejustafterithadbecomethelargestmarketcapcompanyintheworldandhadcomeoffperhapsthegreatestdecadeofdisruptionofanycompanyinhistory(iTunes,iPod,iPhoneandiPad).

¨ Mystory:IconcludedthatApplewasoneofthegreatcashmachinesofalltime,butthatitsdaysofdisruptionwerebehindit,partlybecauseSteveJobswasnolongeratthehelmbutmostlybecauseofitssize;itissomuchmoredifficultfora$600billioncompanytocreateasignificantenoughdisruptiontochangethetrendlinesonearnings,cashflowsandvalue.

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Updatesin2015&2016

¨ Inmystory,IsawApplecontinuingtoproducecashflows,withlowrevenuegrowthandgraduallydecreasingmargins,asthesmartphonebusinessbecamemorecompetitive.

¨ InAugust2015,whenIupdatedtheApplestory(andlookedatFacebookandTwitteratthesametime).ThevalueIestimatedforAppleinthatpostwas$130,higherthanthestockpriceof$110atthetime.

¨ I revisitedthestory afteranearningsreportfromAppleinFebruary2016andcomparedittoAlphabet.Atthetime,IvaluedAppleatabout$126pershare,wellabovethe$94/sharethatitwastradingatthetime.

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BigNamescomeandgo…

¨ InMay2016,CarlIcahn,alongtimebullonApplesoldhisshares,andWarrenBuffett,alongtimeavoideroftechcompanies,boughtsharesinthecompany.

¨ Iarguedthatwhilethesebignamesenteringandexitingthestockmayhavepricingconsequences,Isawnoreasontochangemystoryandthusmyvalue,leavingmyAppleholdingsintact.

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TheLatestEarningsReport:Appleplaystheearningsgame!

¨ Revenues:Revenueof$78.4billionforthequarter,up3%overthesamequarterintheprioryear,beatingexpectationsof$77.4billion

¨ Earningspershare:EPSof$3.36,up2%overthesamequarterintheprioryear,beatingexpectationsof$3.22/share

¨ Grossmargin:Grossprofitmarginof38.5%,versusexpectationsof38.4%

¨ iPhoneunitsales:78million,up4%year-over-year,versusexpectationsof76.3million.

¨ Quarter2Guidance:Revenuesof$51.5-$53.5billion,belowexpectations.

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MyAppleStory(inFebruary2017),withnumbers

Aswath Damodaran

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RidingthePricingRollerCoaster