Shares of Apple Inc. [AAPL] today gained $5.58, or 4.39%, to set a new all-time closing high of $132.75 per share on heavy volume of 51,276,644.
Apple’s previous 52-Week and All-Time High closing high was $127.17 set on July 3, 2007 (the market was closed yesterday, July 4, for Independence Day). AAPL’s all-time intraday high was set June 7, 2007 at $127.61.
Apple’s 52 Week Low stands at $50.16, set on July 14, 2006.
Apple’s market value currently stands at $114,821,847,000.
AAPL quote via NASDAQ here.
MacDailyNews Note: “I am putting a sell on Apple, the company that created the iPhone,” Laura Goldman, investment advisor, LSG Capital, May 21, 2007. AAPL closed at $111.98 that day.
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It’s quite easy to reverse-engineer the $300 billion figure into what Apple would need to do…
Firstly, divide the $300 billion by 35 which brings you to about 8.575 billion in profit.
So, how do we get there?
Well, firstly let’s imagine a future in which Apple sells 2.5 million Macintosh systems per quarter or 10 million/year at an average of $1250.00 per unit.
That’s $12.5 billion, which would – typically – bring in around $2.5 billion in gross profit.
Now, let’s imagine that Apple gets to a point where the iPhone product family (which it will undoubtedly be in time) reaches a steady state of approximately 40M customers annually and that the average revenue/unit is around $350.00.
Given the Sarbanes-Oxley compliant rules which Apple says it is going to follow (remember the Airport Extreme 802.11n enabler thing) for iPhone and AppleTV, you now have to do some calculations which look something like…
Realised Quarterly Income = Actual income from phones ÷ 8
This effectively amortises the income over 8 quarter or the two years of the contract period.
So, assuming 40M phones every year, you get 80M phones over two years.
80M x 350 = which is $28 billion which we add to the original $12.5 billion so we now have $40.5 billion.
Let’s assume that Apple manages to maintain a ‘rump’ iPod business, but now based more on iPhones sans phone worth an average of say $250, rather than today’s simple models which currently have an average unit price of around $160.
My theory is that Apple should still be capable of selling 40M advanced iPods even when the iPhone is in full distribution.
40M x $250 is another $10 billion so we now have $50.5 billion.
The next part of the equation is all the incidental bits of Apple’s business, which is the iTunes Store, software, displays and the like: given the current size of that business, it’s easy to imagine that growing to around $1.75 billion/quarter or $7.0 billion per year which brings us to $57.5 billion.
Apple’s net profitability (expressed as a percentage) over the last few years has been steadily climbing reaching 10.3% for the financial year 2006, whilst the last quarter the figure was over 14%. It’s imaginable that Apple could achieve a sustained net profitability of 10%, which brings us to $5.75 billion.
You’d almost think that was that, but here comes the magic ingredient which is the commission from Apple’s cellular partners: if you assume that Apple can negotiate a 5% commission from its partners and that the average dollar-equivalent, pre-tax spend is $60.00/month, you’re looking at (80M x $60) * 5%, which is $240M/month or $2.88 billion/year.
This final figure is pure profit and brings us to over $8.6 billion in profit.
When might this happen: I’ll bet on sometime in 2009 or 2010.
Markrt cap comparsion v2
AAPL 114.8 B$
NOK 112.4 B$
SNY 52.5 B$
ERIC 65.9 B$
MOT 41.2 B$
@ MCCFR
Great post! Pretty much what I see happening, but thanks for fleshing out the numbers. The biggest variable I see is the Mac business, which looks poised for a big jump.
-c
“Firstly, divide the $300 billion by 35 which brings you to about 8.575 billion in profit.”
You’re happy with 3% return on your investment in Apple once it reaches this steady state?
“You’re happy with 3% return on your investment in Apple once it reaches this steady state?”
You don’t understand P/E, do you?
“You don’t understand P/E, do you?”
Actually I do and you seem to be ignorant of any basic investing principles.
A company is only worth the cash it throws off to you (which it may through stock price appreciation or dividends).
Think of it like this. Say as the poster says, Apple reaches a steady state, and at that point is valued at 300 billion and generates 8.5 billion free cash flow per year which one way or another it returns to shareholders.
Lets say you’re rich enough to own the whole company.
What you have is effectively a savings bond which costs you $300 billion and returns 8.5 billion or ~3% per year.
Lets say you own just one share. Your return is still 3% on that share.
Simple enough for you?
“You don’t understand P/E, do you?”
Still digesting the terrible truth than when companies obtain larger market caps than much larger more established businesses, it’s not usually a GOOD thing (unless you sell at the top)?