Jim Cramer: The Apple analysts are blowing it

“Apple finally reported earnings on Tuesday, and Jim Cramer heard only one question about the stock — how the heck should it be valued?” Abigail Stevenson reports for CNBC. “‘That is the conundrum facing Apple, the greatest wealth creator of our generation,’ the Mad Money host said.

“This is the same question that analysts are faced with four times a year when they are required to peer into the future and derive from the company’s quarterly earnings report to provide investors advice on what the stock is really worth,” Stevenson reports. “‘And for my money, I think they are all blowing it,'” Cramer said.”

“Cramer considers all of these analysts to be traditionalists, and they are all looking at Apple as if it were the same as an IBM that peaked on mainframes. ‘I am a generalist, not a technology analyst, and I can’t view Apple just like another hardware company,’ Cramer said,” Stevenson reports. “Ultimately, Cramer thinks the brand loyalty for Apple is so great customers won’t switch to another company. So maybe Apple doesn’t need to worry about peaking phone sales. Maybe it just needs to keep selling more devices, and let the service stream do the talking. ‘By this time next year, it wouldn’t shock me if that service revenue number becomes the key metric, especially with the iPhone 7 right around the corner,’ Cramer said.”

Read more in the full article here.

MacDailyNews Take: Currently Apple’s fiscal year services revenue ($16.8 billion) is just about equal to the entire value of HP Inc.

SEE ALSO:
Apple reaps $18.4 billion quarterly profit, the largest ever recorded by a single public corporation – January 26, 2016
Apple highlights services in search of Wall Street’s love – January 26, 2016
Apple reaps $18.4 billion quarterly profit, the largest ever recorded by a single public corporation – January 26, 2016
Apple beats on earnings; sets all-time records for revenue, net income, and EPS – January 26, 2016
MacDailyNews presents live notes from Apple’s Q116 Conference Call – January 26, 2016
Apple beats Street with all-time record quarterly earnings – January 26, 2016

32 Comments

  1. It’s an odd thing for Cramer to say. Essentially he’s saying that growth doesn’t matter for Apple because the people who buy Apple’s products will keep buying Apple’s products.

    Ok fine.

    But in order for your valuation to increase, your company has to grow, not just tread water comfortably.

    What good is a $100 share in Apple that sits at $100, even if Apple keeps making money hand over fist? Shares aren’t tied to profits, profits are an indicator of health for sure but not necessarily an indicator of growth.

    Ultimately I guess that means new compelling products and services are going to be needed.

      1. The uptick in services could be attributed to Apple Music. In any cases, services will only grow as much as Apple devices to provide services to grow. If Apple sells 20 million iPhones next quarter to 20 million iPhone users, services will not grow.

        In order for services to grow, they’d have to extend out of the Apple ecosphere. Suppose Apple offered iCloud as a service to Android. That would be growth potential.

        1. “The uptick in services could be attributed to Apple Music”

          Exactly. One new service introduced half-way through the year with a relatively quiet launch, and you get an uptick in a company this size? That looks like a winning formula to me.

          If instead of music, it had been television subscription, what would it have done to service revenue?

          If the number of services is growing, and the rate at which the user-base is adopting these services is growing, and indeed the hardware user-base is still growing (with maybe a flat quarter or two now and then), Apple will have no trouble growing.

          And that’s all within existing “products”. Each time Apple adds a product line (Apple Watch, iPad, etc.), history shows they’re adding the equivalent of of a brand-new fortune 500 corporation to their balance sheet.

          The analysts are badly misunderstanding this company.

    1. What apple really excel at is taking over a market and getting embedded in customers minds. As the market develops Apple gradually squeezes the competition into the zero profit low cost area. The iPod is the perfect example and now with the iPhone Apple are gaining ground in new geographies like India.
      That means there is staying power which is what the market consistently fails to understand.

    2. They have me on the hook for $0.99/month for 50GB of iCloud after my backups started failing to initiate due to “insufficient space”. My backups now, even with photos/videos deselected, mysteriously add up to 15GB.

  2. I don’t think we’ve reached anything like peak iPhone sales. All that has happened is that a combination of circumstances have resulted in this last quarter being a challenging quarter for smartphone sales, but Apple did pretty well while facing those challenges and still marginally increased sales at a time while it’s rivals saw sharply reduced sales.

    Once the financial instability and exchange rates settle down, I believe that Apple will return to healthily increasing iPhone sales.

  3. Let’s face it. Apple is too late in entering new markets. The face that Apple does not have a video streaming service like Netflix is unbelievable. And they are not producing original content. Whereas if the future of TV is apps then were does Apple fit in. Apple should buy Netflix if they cannot get the license agreements completed. They are now less sticky than ever.

    1. It is never to late to enter new markets. They just need to start doing it. Netflix is interesting. They just announced expansion to over 130 countries. They’re growing but there will be growing pains as primitive countries react to the content.

      1. Sure. But we have to keep things in perspective.

        In just one quarter, the amount of *profit* Apple missed out on simply due to currency fluctuations was greater than Netflix’s *entire annual revenue*.

      2. The biggest growing pain is they have achieved good margins in the US, but now have to go back to large losses in order to invest in 100+ more countries for the future.

        Its the right thing to do, but whenever a large company runs on losses it creates additional uncertainty and challenges.

        Of course the prize is be to become the largest TV network in the world. Well worth it if they achieve that.

        1. They do not have to run losses in any of those markets. They just have to make lower margins. In general, they will not seriously drop prices anywhere in the world, as it would create an arbitrage opportunity for “greymarket” Apple products being shipped from one country to another.

          Apple will probably not need to cut margins all too much in any case, as the Chinese currency is most likely going to depreciate another 5-8% in the coming year, lowering Apple’s manufacturing costs. Their position would have been better in South America if the Brazilian govt. wasn’t such a corrupt disaster and Hon Hai were able to get their Brazilian iPhone plant on-line. It is producing almost nothing so far, and Hon Hai management does not seem very optimistic.

          The market likes tech service businesses because margins are basically irrelevant as long as the company has some kind of scale. One up and running and basic infrastructure costs are covered, each additional user/account is essentially 100% profit.

    2. Apple Music is going to have more paying customers than Spotify and Pandora put together in the near future.

      Netflix sucks. I hardly watch it anymore and it caps out at $9.95 per family/month whereas Apple Music has a family plan at $15.95/month. Just wait til Apple Movies comes out.

  4. The Analysts think that Apple has a fake cloud because you can’t set up virtual servers and other geek stuff in it. Apple has a consumer focussed cloud and will monetize that greatly in 2016. The potential audience for the consumer cloud is way bigger than the geek cloud. The analysts are totally blowing it. iPhone sales matter less when you are spawning new multibillion dollars business units that will grow exponentially.

    1. iCloud doesn’t run on Apple servers so you could say it is a ‘fake’ cloud due to renting the space from the other companies (e.g. Amazon, Google, IBM, etc.) As far as I know, the data centers Apple does own are used to manage and serve all the apps and media in the Apple ecosystem. I think the concept is closer to Akamai than the other cloud providers.

    1. The buy-backs are a good investment as long as the shares are this undervalued.

      It’s a very cheap way to boost earnings per share (the same profit is counted against a smaller number of shares).

      Each share that comes out of circulation is a dividend payment that does not have to be made (it’s the gift that keeps on giving).

        1. Payable Amount Type
          Jan 26, 2016 Feb 8, 2016 Feb 11, 2016 $.52 Regular Cash
          Oct 27, 2015 Nov 9, 2015 Nov 12, 2015 $.52 Regular Cash
          Jul 21, 2015 Aug 10, 2015 Aug 13, 2015 $.52 Regular Cash
          Apr 27, 2015 May 11, 2015 May 14, 2015 $.52 Regular Cash
          Jan 27, 2015 Feb 9, 2015 Feb 12, 2015 $.47 Regular Cash
          Oct 20, 2014 Nov 10, 2014 Nov 13, 2014 $.47 Regular Cash
          Jul 22, 2014 Aug 11, 2014 Aug 14, 2014 $.47 Regular Cash
          Apr 23, 2014 Jun 2, 2014 Jun 9, 2014* N/A 7-for-1 Stock Split
          Apr 23, 2014 May 12, 2014 May 15, 2014 $3.29 Regular Cash
          Jan 27, 2014 Feb 10, 2014 Feb 13, 2014 $3.05 Regular Cash
          Oct 28, 2013 Nov 11, 2013 Nov 14, 2013 $3.05 Regular Cash
          Jul 23, 2013 Aug 12, 2013 Aug 15, 2013 $3.05 Regular Cash
          Apr 23, 2013 May 13, 2013 May 16, 2013 $3.05 Regular Cash
          Jan 23, 2013 Feb 11, 2013 Feb 14, 2013 $2.65 Regular Cash
          Oct 25, 2012 Nov 12, 2012 Nov 15, 2012 $2.65 Regular Cash
          Jul 24, 2012 Aug 13, 2012 Aug 16, 2012 $2.65 Regular Cash

  5. I wonder how Apple’s purported iPhone 5se will fit into this. It would be a nice Q1/Q2 boost to Apple to have it available. At the same time it may cannibalize sales of the current 6s/6s+ and future iPhone 7.

    I wish Apple could really maximize their tech and production savvy to make a $399 or under phone while retaining healthy margins. There’s a large market that wants iPhones but buys them used instead, which doesn’t give Apple anything. I’d be curious to know how many of their 1 billion active devices are secondhand and have actually been used to make an Apple service purchase.

    1. used iPhones still give Apple revenue in the Services column… many people I know are paying apple $10/$15/$20/$30 a month for a mixture of monthly services and then purchasing movies like mad on iTunes, even though they got an unlocked 6 for cheap. Then add on an Apple Watch and Beat headphones and the ASP is really unmatchable by any other handset company. Each iPhone will continue to generate profit after the initial sale.

  6. Carl Icahn’s investment in Apple was clearly a bad move in terms of making money. He should have dumped Apple and gone with Netflix instead of the other way round. If he actually thought he could pump Apple up to be worth close to $200 a share then he truly bought a rotten pumpkin. Apple isn’t even worth half Icahn’s hoped-for value and likely to be worth a lot less before the year is out. Netflix is more likely to reach $200 share than Apple.

    Every F.A.N.G. stock is making Apple stock look more like crap each passing day. At this rate Amazon should easily pass Apple in market cap by 2017 and then Tim Cook will probably become the most despised CEO on the planet. It’s really not easy to take a wealthy company and run its value into the ground. Shareholders will be very unhappy.

      1. That may take a while with AMZN being about $230B less than AAPL in market cap.. AMZN is close to XOM though with only about $23B separating them today. With Amazon into controlling the entire distribution channel from warehousing to practically supporting the USPS for ‘last-mile’ delivery (not to mention they’re into shipping and air freight now) I don’t find it a surprise that AMZN is doing well this year in the eyes of investors.

  7. Derek considers all these ‘analysts’ to be incoherent, either deliberately (click-bait, stock manipulation…), chemically (amphetamines, cocaine psychosis…) or emotionally (‘The sky is falling!’, ‘The end is nigh!’).

    Meanwhile, thrive on Apple!

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