Apple And The Long Arc Of Time

“In the fiscal year beginning in late September, Apple will generate over one-quarter trillion dollars in revenue and sell more than one-quarter billion iPhone handsets. In the upcoming December quarter the company will set yet another record for corporate profitability in a three-month period.”

I posted the above paragraph as a comment on a recent column by Philip Elmer-DeWitt about Apple’s upcoming September 9th event. The focus of Philip’s column, in my interpretation, is the incessant demands of Wall Street for sensational new products, “one more thing” surprises and almost Hollywood-style showmanship at every Apple special event. I concluded my comment by posting, “While some on Wall Street might want the likes of PT Barnum, most of us who buy Apple products and invest in the company’s stock prefer the steady hand of CEO Tim Cook.”

While millions of us may enjoy discussing, debating and speculating about what new products Apple might have under development or may announce during the company’s fairly regular product events, the company’s revenue over the past several years has been marked by an impressive and unbroken sequence of rising year-over-year quarterly growth. This has occurred without game show-style product introductions or fantastical claims about future product features and functionality. 

Apple And The Long Arc Of Time 

The graph below illustrates Apple’s revenue on a quarterly basis as far back as FQ1 2009. In that quarter recognized revenue was $11.880 billon. By comparison, in FQ1 2015 Apple’s recognized revenue was $74.599 billion or a greater than six-fold increase in revenue in the first quarter of the fiscal year over a six-year period of time. No wonder Apple’s CEO is fond of the term “long arc of time” when responding to analyst questions during the quarterly conference call with analysts. When Apple completes the current fiscal year near the end of September, the company will report a greater than five-fold increase in revenue over the same six-year period. 

The corresponding EPS graph below illustrates an even more impressive outcome during this six-year period. Again using FQ1 2009 as the benchmark, Apple’s earnings per share in FQ1 2015 of $3.06 was 8.5 times greater than the split-adjusted $.36 in eps reported in FQ1 2009. While the company’s ongoing share repurchase program has diminished the fully diluted share used on a split-adjusted basis in this comparison, the company’s rising revenue has been the most substantial factor in the eps growth rate.

What A Weird, Whacky and Wild Stock Market Ride!

I’ve been receiving inquiries about when I will publish my next article. My answer is: “Soon.” I primarily cover Apple’s fundamentals with an emphasis on performance trends. I’m sure what I describe as a “Weird, Whacky and Wild Stock Market Ride!” has created some curiosity as to how I view Apple and the market in the midst of this rollercoaster ride on Wall Street.

Because I follow Apple’s fundamentals and not technical charts or the broad market in general, I’m a bit bemused by the recent pummeling of Apple’s share price. In my view, the company’s fundamentals remain strong in the midst of a $140 billion share repurchase program, a dividend increase put in place last spring and recent comments from the company’s CEO the iPhone’s performance in Greater China in on track with management’s expectations for the current quarter. As of the end of the June quarter, Apple had about $150 billion in cash, cash equivalents and marketable securities net of debt acquired to fund share repurchases.

In other words, management has ample resources to fund the share repurchase program, increase the quarterly dividend again next April while investing in research and development on existing products and yet-to-be-announced products and services.

I consider Apple a buy-and-hold long-term investment. Although I continue to acquire shares, I do not “trade” the stock or any other stock. I’m not one to provide stock market advice. I don’t have a margin account, I have never purchased options and have no desire to “trade” stocks. I am a long-term Apple shareholder focused on the company’s fundamentals. I tend to hold equities for more than a few minutes or a few months.

My current view is as follows: 

Around this time last year the Street’s consensus revenue estimate for the current fiscal year ending in September was $197 billion. The company is closing in on about $235 billion in revenue for the period.

At this time the Street’s consensus revenue estimate for FY2016 is, according to Yahoo! Finance, $244.66 billion or an estimated revenue growth rate of about 4.90%. According to the same source, the Street’s current eps consensus estimate for FY2016 is $9.76 or about a 7.2% eps growth rate over the current eps estimate for FY2015 of $9.13. 

In the first time nine months of the current fiscal year Apple’s revenue rose about 30%. iPhone unit sales, representing roughly two-thirds of the company’s reported revenue total, rose about 41% in this nine-month period. Apple Watch revenue will be wholly accretive to revenue growth on a year-over-year basis in the first six months of the fiscal year beginning in late September.

More than a device maker, I consider Apple a “customer relationship continuum.” I consider each new product release and the company’s new services such as Apple Pay, Apple Music and the highly anticipated TV content service as continuations of the ongoing “conversation” Apple has with its global customer base. While past performance is not necessarily an accurate indicator of the company’s future performance metrics, I do expect Apple’s revenue and earnings per share growth performance in FY2016 to handily beat the Street’s current expectations. 

I see a great deal of strength in Apple’s product and services lines and in the ongoing relationship the company has with its hundreds of millions of product and services customers. While I don’t expect the same revenue and eps growth rates next fiscal year the company is enjoying this fiscal year, I do see real opportunities for continued growth in each of Apple’s regional revenue segments.

I’ll be back with my next article soon. In the meantime I remain bemused by the dramatic drop in the share price over the past few weeks, the broad market’s significant pullback not withstanding. 

I’m not one to give investment advice and please don’t consider any content I post to be investment advice. All investors need to perform their own due diligence and make informed decisions based on their circumstances and objectives. But in my own ongoing conversation with the readers of my blog, I’m confident in the ability of Tim Cook & Co. to continue to successfully execute the company’s business plan, I look forward to trading in my iPhone 5s for the next flagship iPhone handset this fall and acquiring the new Apple TV (when it finally arrives!). Until then I’ll watch with more than mild curiosity the wild gyrations in the share price. My next article is: “Coming Soon.” 

Robert Paul Leitao

Disclosure: The author is long Apple shares