“Apple announced its first-ever $1 billion profit quarter [yesterday], an impressive milestone that’s a testament to the rise of iPod and the resurgence of the Mac. But the most important number for investors might be the slower holiday sales growth of the iPod compared to the year before,” Jon Fortt blogs for Business 2.0.
Fortt writes, “Mac fans will pummel me here for being overly critical, but these financial figures require a critical eye.”
Fortt writes, “Let me be clear here: iPod revenues are still growing quite a lot. In holiday 2006 they were up 50 percent (to 21,066,000) over the same quarter in 2005. But get this: In holiday 2005 iPod sales grew 207 percent (to 14,043,000), in holiday 2004 they grew 525 percent (to 4,580,000), and in holiday 2003 they grew 235 percent (to 733,000). Dropping to 50 percent is a dramatic slowdown.”
Fortt writes, “Why does it matter that iPod sales growth is slowing, if Apple sold 21 million of the things in calendar Q4 alone? Because stock price is all about momentum. The iPod has driven Apple’s growth to this point, and if Apple’s stock price is to move higher at a rate similar to how it has in the past, its sales will have to grow at a similar rate. So if the numbers aren’t coming from the iPod, where will they come from?”
Here are some possibilities, and some risks:
• The Mac
• Apple TV
Fortt writes, “Is that cause for investor alarm? Not necessarily. Every company that’s had a hit product goes through a cycle like this, when that product matures and a new one is coming to market. And Apple is well positioned to weather the transition, having built up its war chest of cash to $11.9 billion, after adding $1.75 billion last quarter alone. Given the iPod sales growth numbers though, I wouldn’t expect an uninterrupted upward slope on that stock chart.”
Full article here.
Fortt underestimates the power of tens of millions of iPod owners who will want the new, larger screen, higher-capacity, multi-touch iPods. Apple is well-positioned for the future and iPod unit sales growth was shockingly high in the holiday quarter, exceeding even the rosiest of Wall Street predictions. By the way, some say that the multi-touch UI is not just for iPhones and iPods.
Apple Financial Results Conference Call Q1-2007 Live Notes – January 17, 2007
Apple smashes Street, posts revenue of $7.1 billion and record net quarterly profit of $1 billion – January 17, 2007