Wednesday, October 3, 2012

Fiscal 4Q 2012 Final Estimates [Updated 10/24]

[10/24 UPDATE: In light of information revealed during the October 23 event and, to a lesser extent, widely reported PC industry weakness, I'm revising iPad and Mac estimates for Q4. I now estimate 4m fewer iPads and 0.5m fewer Macs (mainly inventory drawdowns) results in about $3b less revenue and $0.80 lower EPS. Gross margin percent goes up about 70 bps due to mix. I'll be posting a detailed revision later today (here).]

As of Tuesday's closing price of $661.31, AAPL is trading at a 10.1 multiple on my forward EPS estimate (8.1x ex-cash). Valuation remains attractive despite the 9.1% increase in share price and downward revenue/EPS estimate revisions for FY13 of 8.7/10.4% over the last 3 months.

Detailed estimates below:

3mo ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     7.65
Analysts consensus     36,270     8.88
Deagol estimates       39,136    10.48

3mo ending Dec-2012   Rev($M)   EPS($)
-------------------   -------   ------
Deagol estimates       60,310    18.24
Analysts consensus     54,960    15.44
Apple guide (est.)     53,000    13.90

12m ending Sep-2013   Rev($M)   EPS($)
-------------------   -------   ------
Deagol estimates      219,077    65.31
Analysts consensus    193,890    53.30

Valuation (12mo ending on)   EPS($)  Y/Y  10x  Cash  Div   Tot
--------------------------   ------  ---  ---  ----  ---  ----
Trailing        (Sep-2012)    45.97  66%  460   131    3   594
Fair value      (Sep-2013)    65.31  42%  653   180   12   845
1yr target      (Sep-2014)    80.67  24%  807   238   15  1060

F4Q12 Revenue breakdown ($M):
Mac        6,662 ( 5,378 × $1,239)
iPod         872 ( 5,600 × $156)
iPhone    17,627 (28,000 × $630)
iPad      10,203 (19,000 × $537)
iTunes     2,170
Periph       735
Software     866

Income statement ($M):
Revenue   39,136
COGS      22,404
GM        16,731
OpEx       3,551
OpInc     13,180
OI&E         178
Pre-tax   13,358
Tax        3,406
NetInc     9,951
Shrs.        950
EPS       $10.48

GM%        42.8%
OpInc%     33.7%
Tax%       25.5%
NetInc%    25.4%


MarkusTD said...

Daniel: estimate looks good. How many iPhone 5's are you assuming in your 28m units number?


artman1033 said...

lthMy ASP for the Iphone would be closer to $600. This estimate is based on the idea that the carriers would want to push the 4S and the 4 rather than the 5. Local observations seem to show that the USA carriers' stores have a good supply of 4S and 4 iPhones. MOST of the USA carriers' stores are out of stock of the iPhone 5. Most stores say they have been out of stock of the iPhone 5 since the first day. The iPhone 5 can be ordered through the carriers' website, but in may take two weeks.
Keep up the good work

Daniel Tello said...

MarkusTD, about 8 million iPhones 5.

Artman, you may be right but I don't think it'd have a huge effect. Assume carriers pushed an extra 2m at the reduced price (say $100 off). Effect is $100*2m/28m = $7 lower ASP. Also keep in mind the weaker dollar during this last quarter.

Joe Borelli said...

8MM iPhone 5 is low. Apple moved up deliveries on mine and many million others to Sept from Oct, so they could be counted in Q4. This will be the big surprise. I expect at least 12MM.

Dan said...

I have a previous Sept 2013 estimate from you at 72.93. Why the lowering? Any insights? thanks

Daniel Tello said...

Dan, I made that revision (-10.4%) explicit in my commentary in the post. The main reason for it is, in Q3 I overestimated EPS by 30.5% ($12.16 vs $9.32 actual). As a result FY 2012 growth is coming through much lower than projected then, and even keeping 2013 growth at the same level (I lowered it just a bit) would require a downward EPS revision.

Daniel Tello said...

Something about that last comment kept bothering me, something didn't add up in my mind, so I went and checked the precise revisions I had made. Turns out I didn't reduce 2013 growth but actually increased it. Here's how a 10.7% reduction can still result in stronger growth than originally estimated:

As I said, my Q3 EPS estimate was $12.16 while Apple came at $9.32 (a 30.5% error or $2.84). But I forgot to mention an even bigger (33.9%) error due to my Q4 revision from $14.03 (see guidance section on July post) to the $10.48 here, another $3.55 shaved from F12 for a total of $6.39, or from $52.36 to $45.97.

Thus, the old 72.93 for F13 represented 39.3% y/y growth (over the original 52.36 for F12), while the new 65.31 for F13 now represents 42.1% growth (over the current 45.97 for F12).

Anonymous said...


Thanks for all you do for us in the Apple Investment Community. You are the man!

In light of the numbers revealed at the Apple Event today, do you think your numbers need revising?


Daniel Tello said...

Yes, 4m less iPads and .5m less Macs (mainly inventory drawdowns) results in about $3b less revenue and $0.80 lower EPS. Gross margin percent goes up about 70 bps due to mix. I'll be posting a detailed revision later today.

Glenn said...

Daniel - following AT&Ts results this AM we have 7.8m iphone sales accounted (AT&T + Verizon), c.25% of your 28m total for the quarter. Are you assuming the same breakdown in your 28m iPhones sold in Q3, i.e. that Verizon and AT&T account for c.25% of total iPhone sales?
Thanks for your work.

Daniel Tello said...

Glenn, I think I'm ok with those.

Daniel Tello said...

To clarify, my guess would be that US carriers would slightly increase (less than in previous launches) their share of global iPhones right after the launch when compared to Q3. It was 6.4m or 24.6% of the 26m total then, while for Q4 it would seem it's up to 27.86% of my estimated total.

Bill said...

Can you explain how the gross margins goes up 70 bps based on the new mix of numbers? I'm assuming this is because of the higher percentage of iphone contribution to revenues, but can you explain how you came up with an increase of 70 bps.

Thanks, your doing a great job here.

Daniel Tello said...

Bill, think of it as mixing parts with different concentrations of profits. Sort of like using spirits of varied alcohol levels in a cocktail mix. I'll give you an example using approximate figures:

So, I wanted to make a great Appletini using my very own recipe: 30ml of this rather strong vodka having 50% alcohol by volume or ABV (iPhone GM% is probably higher), 20ml of a fine Calvados with 40% ABV (iPad GM% a bit lower), and a splash (5ml) of vermouth with 20% ABV (Mac GM% is about 30%). The resulting alcohol content would be:

= (15+8+1)/55
= 24/55
= 43.6% ABV

That's 24ml of alcohol in my 55ml drink. But while mixing my sweet elixir, I decided to have a few sips (5ml) of the Calvados, and then in my excitement I spilled a bit (1ml) of the vermouth. So the actual drink ended up being stronger (more vodka concentration) despite having a bit less total alcohol:

= (15+6+0.8)/49
= 21.8/49
= 44.5% ABV

So even though the total alcohol went down by 2.1ml (EPS down by $0.80) the drink ended up being stronger by 90 basis points of ABV.

This is a very simplified example with just units and concentration levels. In reality for Apple you need to incorporate ASPs and all the other stuff like iPod, iTunes revenues, software, etc. See all the details here.

Daniel Tello said...

Sorry, that should say "went down by 2.2ml".

The gist of it is, the blended GM% is mathematically a weighted average of the individual products' ("ingredients") GM%, weighted by each product's revenue. So any change in an "ingredient" amount (its weight in the average) will affect the blended GM% depending on that ingredient's GM% in relation to the original blended GM%.

Thus, if you add an ingredient with higher margin than the blend, you'll inevitably end up with a higher blended margin. If you add one with lower margin than the blend, your blended margin goes down. Similarly if you're remove ingredients, reducing the amount of higher-than-blended-margin ingredients lowers the blended margin, and reducing lower-than-blended-margin ingredients increases the blended margin (this last case is the one relevant now when reducing the iPad and Mac ingredients).

But that just explains the direction of the effect. As to the precise intensity of it (why 70bps?) you just gotta run the numbers.