Apple: The Incredible, Irrepressible Growth Company

In reviewing Apple's retrospective filing for FY '09 I came across an impressive chart that displayed in easy to read numbers the company's revenue for the past five fiscal years. 

For the fiscal year ended in September 2009, Apple reported revenue of $42.905 billion, net earnings of $8.235 billion and resulting eps on fully diluted shares of $9.08. In contrast, for fiscal year 2005 Apple reported revenue of $13.931 billion, net earnings of $1.328 billion and resulting eps on fully diluted shares of $1.55.

In the four-year span from the end of fiscal year 2005 to the end of fiscal year 2009 Apple's reported revenue increased 308%, net earnings increased 620% and eps increased 586%. This for a company with a current p/e multiple of 19.93 times trailing 12-month earnings based on Friday's closing price of $204.62. The company also has over $40 in cash standing behind each share outstanding and no long-term debt.

It's obvious the Apple iPhone has been a strong revenue and earnings driver for the company. Introduced in 2007, the popular smartphone has sold over 40 million units worldwide. By summer the Apple iPhone and it's non-phone companion, the Apple iPod touch, will pass the 100 million units sold milestone. 

Last week, Time Cook, Apple's Chief Operating Officer, reminded those assembled at the Goldman Sachs Technology & Internet Conference the iPhone has been in the market for less than three years and the company considers the product line to be in its early stages of growth. 

In a previous post I mentioned Apple's revenue could reach $60 billion in the fiscal year ending this September. Based on the current pace of iPhone sales (doubling unit sales each quarter over the corresponding prior year period) combined with continued strong growth in Mac unit sales, the company could come close to increasing revenue by 40% this fiscal year alone. This is without revenue and earnings contributions from the soon-to-be-released Apple iPad. In the December quarter Apple's revenue increased by 32% over the prior year period. Moving the needle just a bit further to the right puts the revenue total for the fiscal year close to the $60 billion number. In the December quarter eps increased by 47% or at a pace about 50% faster than the growth in revenue.

Preliminary estimates indicate the Mac line continued its fast pace of unit sales growth through January and international sales should continue to post impressive gains versus the prior year periods for the March quarter and the fiscal year. The Apple iPhone and its accompanying rich margins should continue to deliver earnings growth for the company as a whole of 1.5 times the growth in revenue. 

Add to this pace of revenue and earnings growth the performance of the new Apple iPad with its favorable margins and Apple should deliver eps this fiscal year of over $14 per share. Last October I used a 12-month price target of $300 per share. By October of this year that target may prove conservative. I will issue a new 12-month price target for AAPL next week. 

AAPL: $60 Billion In Revenue In FY '10

In early January I analyzed Apple's FY '09 revenue and based on the unit sales actuals for that fiscal year projected Apple's FY '10 revenue in the neighborhood of $60 billion. On January 27th, during the iPad introduction event, Steve Jobs stated, based on the company's 1st fiscal quarter results,  Apple is a $50 billion per annum enterprise. In my view, Mr. Jobs was being modest in his assessment. 

No matter the introduction of the new Apple iPad, Apple is on track for record revenue and earnings for the fiscal year ending in September. My $60 billion revenue projection is based on a simple extrapolation of Apple's first fiscal quarter performance with similar unit sales performances versus the prior fiscal year in each remaining fiscal quarter and using the 1st fiscal quarter's ASPs as a constant for the full fiscal year. 

As I've said several times on the Apple Finance Board, in FY '10 Apple will be a $60 billion revenue enterprise with the Apple iPad. Similarly, Apple will be a $60 billion revenue enterprise in FY '10 without the Apple iPad. It makes no difference in reaching that revenue threshold. 

Below are my unit sales projections for Apple's current fiscal year:

Mac units: 13.6 million units

iPhone Units: 41.48

iPod Units: 50 million units

iPad Units: To be determined

Benefitting Mac unit sales is an anticipated refresh of the Mac Pro line this quarter and comparatively strong iMac sales throughout the fiscal year.

The iPhone will see a doubling of unit sales over the prior-year periods. I'm anticipating continued strong unit sales growth in markets outside the US. The addition of a Verizon deal would boost total domestic unit sales even more. 

As Apple seeks to increase iPhone sales and market penetration, the prospects of a fully subsidized phone ("free" to the consumer at time of purchase) becomes an intriguing possibility. While this might ding ASPs slightly, the increase in unit sales and mid calendar year refresh of the iPhone line will push unit sales to a 100% growth rate. 

I'm anticipating a 10% unit sales decline for the iPod line for the remaining quarters of the fiscal year. Revenue may remain static due to the increasing percentage of iPod touch units of all units sold. 

I expect the Apple iPad to make a strong sales debut. While some suggest the Apple iPad may cannibalize some iPhone and iPod touch sales, there's also the possibility the Apple iPad will serve as a sales catalyst for other iPhone OS-equipped devices. 

No matter the sales the iPad may take from other Apple products, the iPad is being positioned to compete directly with Windows netbooks. Starting at $499, a much lower price point than most pundits expected, the Apple iPad is attractively priced to compete for sales and will ship in the millions of units this fiscal year. I'll add projections for the iPad in my revenue estimate updates.