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Apple: Blockbuster Quarter and Stock !

By all means Apple had a blockbuster quarter with its first $20 Billion quarter. There are so many things to like about Apple's latest quarter:

  • First $20 B quarter
  • Over $4.6 Billion in net profits
  • Beat earnings estimates by over $500 million
  • Over 14 million iphone sales
  • Revenue forecast for holiday quarter of over $23 Billion. I won't be surprised if holiday quarter crosses $24-25 billion in revenues for Apple
No wonder it's stock was trading at all time high near $318 and it was second most valued company in America and most valued technology company in world !

Ok - but that was about past and as we all know, investors like to know what's in future. There are some concerning trends in same report:
  • ipad sales were less than expected. Many folks were expecting over 5 million units. It came in around 4.2 million units. Not bad for any other company considering this was brand new category which did not exist just few months back. However since expectations were so high (with some of my friends predicting 60 million units per year at some time in future which I don't agree), that latest quarterly sales were bit dis-appointing
  • Gross margins - this was a major concern. With ipad priced to sell, gross margins came in 4-5 % lower than previous quarter. With onslaught of Andriod smart-phones and tablets, this would be under pressure in 2011
  • ipod sales down by 11%. This is something Apple investors are not used to
  • With market value close to $290 Billion, Apple stock is priced for perfection and as we all know, even Apple would have some hiccups along the way
So how would Apple stock behave in 2011 ?
  • After market, stock is already down by $20 bringing it below $300. That may be short-term over-reaction
  • Q1CY2011 would have quite a few catalysts:
    • ipad 2 launch
    • iphone on verizon network
    • iphone 5 with possibly smaller form-factor 
    • Refresh of ipod line
    • New Mac line possibly with some of the ipad features 
    • Potentially first $25 Billion quarter
  • With so many catalysts, Apple would become most valuable company in America sometime by Summer 2011 with stock around $350-380
  • However after that laws of very big numbers would catch up with Apple and only way its stock has is to go down !
  • Eventually Apple would stay around $300 after relinquishing its title of most valuable company back to Exxon
  • After all, many technology companies after grabbing "most valuable company" title could not hold it for too long ! I happen to work in one of such company !
/Shyam

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