Apple's Monster Quarter And The Pending Share Price Advance

Apple is unique among America's mega caps due to the company's ongoing rates of revenue and earnings growth. From $108.25 billion in revenue reported in the fiscal year ended in September, Apple will surpass $170 billion in revenue this fiscal year and reach over one-quarter trillion dollars in revenue in FY2013. At a current market cap of $375 billion, the shares trade at about 14.5 times trailing twelve month earnings of $27.68 per share and at about 8.75 times my projected FY2012 earnings of $46 per share.

Because of the company's frenetic rates of revenue and earnings growth, Apple is in an equity class all its own. Apple will deliver a third consecutive fiscal year of revenue growth above 50% and eps growth above 60%. This fiscal year's strong performance begins with what I call "Apple's monster quarter."

Apple's Monster Quarter

Apple's first fiscal quarter of FY2012 will be fourteen weeks in length. It stretches from September 25, 2011 to December 31, 2011. The additional week in the quarter will encompass the immediate post-Christmas period. The quarter also includes the initial release of the iPhone 4S in the United States and other launch countries. The additional shipping week, the new Sprint agreement for the iPhone and pent-up demand for the recently refreshed smartphone handset will deliver revenue growth greater that 60% in the quarter and eps growth exceeding 80%. 

AAPL's Discount To Current And Future Growth
The chart below illustrates how much the rate of Apple's share price appreciation has fallen behind the rate of earnings growth over the past four quarters. Despite the 82.7% growth in earnings per share in FY2011, at Apple's closing price of $403.33 on Friday, December 23rd, the share price has risen only 24.64% year-over-year. The dates selected for the charts in this article represent the first trading day of the month following the release of quarterly earnings and the closing price on Friday, December 23, 2011.

Apple's Ghost Of Christmas Yet To Come

In the famous novel by Charles Dickens, Ebenezer Scrooge is visited on the night before Christmas by Ghosts of Christmas Past, Present and Yet To Come. The story, which has endured many popular adaptations, ends with the conversion of a miserly and miserable man to a gentleman who carries with him the hopeful and generous spirit of Christmas to the end of his years.

I have followed Apple since the release of the original Macintosh in early 1984. I have witnessed and written about the tragedies and triumphs of the company's past, its present and Apple's potential for growth in the years yet to come. Today I see a storied enterprise with a colorful past befitting its own novel, yet an enterprise that maintains a youthful, almost playful approach to the product strategies that will yield success in those years yet to come.

Apple's Ghost of Christmas Past

I remember a time when the word "beleaguered" had become a de facto prefix to the company's corporate name. The company that many consider the first modern tech industry IPO and the company that claims to have ignited the personal computer revolution became stodgy and stubborn like the character in the Charles Dickens novel.

In the mid-1990's Apple didn't lose its leadership in the PC market because Windows PCs were better. Apple lost its leadership because the CEO at the time bet on the brand name rather than innovation to deliver revenue and margins. The Performa line of Macintosh computers nearly drove the company to oblivion.

It was a twist of fate and a combination of products for content creation and content consumption that reversed Apple's fortunes. The return of Steve Jobs, the nimble and diminutive iPod, the iTunes music store and a revamped line of personal computers sparked one of the great corporate revival stories of the past one hundred years. It was innovative thinking that started Apple and it's the continued spirit of innovation that recently delivered the company's first $100 billion fiscal year.

Although Apple has invested heavily in building global brand awareness, innovation is delivering record revenue and earnings, not the brand name. Apple has learned from its ghosts of the past.

Apple's Ghost of Christmas Present

For the holiday season of 2011, Apple released a compelling line of new smartphones and the company is a global leader in the emerging market for tablet-style products. This quarter Apple will generate revenue of over $40 billion and earnings of more than $11 per share.

Apple Competes With Device Makers, Not Operating Systems
Contrary to popular opinion, Android handset makers compete more with one another than they compete with Apple. Apple's biggest challenges are maintaining the pace of product innovation and meeting demand with supply when refreshed products are initially released.

Absent innovation Apple can not sustain strong rates of revenue and earnings growth. Only in the absence of adequate supplies of newly released Apple products can competitors establish or sustain a lucrative foothold in any of  the company's primary product markets.

Where Apple Makes Its Money

In the past ten years Apple has transitioned from being primarily a personal computer maker with annual revenue of just over $5 billion to a global enterprise with literally twenty times the revenue, retail store locations around the world and four major product lines including the popular iPhone line of smartphones. Today I'm taking a look at where the company now makes its money. Over 60% of Apple's revenue is currently sourced from the sales of products and services outside the United States.

Management By Geographic Region
According to the company's regulatory filings, Apple "manages its business primarily on a geographic basis." The company's geographic segments consist of the Americas, Europe, Japan, Asia-Pacific and Retail. For Apple's current fiscal year (FY2012) ending in September, I estimate revenue growth of 57% to $170 billion. This is following the 66% revenue rise to $108.249 billion that occurred last fiscal year. The company's strong rates of revenue growth are fueled in part by continuing international expansion.

The US and China: Apple's Revenue Leaders
When Apple retail store sales are assigned to the countries of sales origin, Apple's FY2011 revenue from US sales comes in at  $41.812 billion. This represents 38.6% of the fiscal year's total. I expect the US to deliver about 37% of reported revenue in FY2012 on revenue growth of at least 50% in the region. As early as FY2013, non-US revenue sources may deliver 67% or two-thirds of the company's top line number. China is the only country outside of the US to deliver over 10% of recognized revenue in FY2011. China's $12.472 billion in revenue represented 11.52% of the company's $108.249 billion total.

In fiscal years 2011 and 2010, revenue growth in the Asia-Pacific segment exceeded 150% and in FY2011 Asia-Pacific delivered almost 21% of the company's recognized revenue. In FY2012, I expect the Asia-Pacific region, inclusive of China, to surpass Europe in revenue generation and become Apple's second largest geographic revenue segment.

The pie chart below illustrates each geographic segment's percentage contribution to Apple's revenue in FY2011. The numbers include retail store sales as a separate geographic segment as formally reported by Apple: