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