Tuesday, April 20, 2010

AAPL: $13.5B Quarter

Good news for Apple investors. Some points to think about:

Apple's iPod unit sales were steady, but the iPod Touch component was on fire, with an iPod Touch revenue growth of 63% year-over-year. Apple may be doing to music players what it did with computers, convincing people to pay more for more and taking greater profits in the process. Apple's iPod inventory is 4-6 weeks, which is what Apple tends to target.

Apple's Mac sales were up 33%, which must mean Apple gained share because the industry was only up 24%. Apple set a new quarterly record for Mac revenue.

Apple's iPhone, which took J.D. Power's top spot again, sold 8.75m units for $5.3B, an average of $600 each. The iPhone is on fire, setting a new quarterly record. Apple's phone sales growth is three times that of the industry, so Apple is taking share even as it maintains profits. Photos of Apple's next iPhone are also in high demand ... I'll be all over an 80GB 4G iPhone that lets me finally replace my iPod while letting me carry all my current work files. Imagine DropBox running on your iPhone so you can't lose your data even though you have only one "computer". But back to the earnings call: China's iPhone sales have multiplied about 9x, and the product enjoys 800 more points of distribution than it did a year previously. Only the U.S., Spain, and Germany have carrier-exclusivity agreements at present. When Apple's iPhone 3G became available last year at a subsidized price of $99, Apple was surprised how many people still bought the iPhone 3GS. Apple is clearly attracting a consumer with premium tastes and willingness to spend to get Apple's premium products in the phone segment.

Apple's iPad is selling well, a fact so anticipated that it has already impacted eBook pricing. (Okay, Apple calls them iBooks, but this seems confusing because the consumer notebooks were recently called iBooks, so I say eBooks for now.) Apple's comment was that it had high hopes for the iPad, and it's exceeded those. Apple will report iPad revenues as it does iPhone revenues, with a separate line item.

Apple's retail results are strong and strengthening. In China, Apple will launch 2 stores in Shanghai this summer and will have 20 in China by the end of 2011. Half of Apple's retail sales are still to new-to-Mac buyers. $5.9M/store average revenue and increases in per-store revenue; cash flow from established stores are strong.

AppleTV is up 34% y/y, but this is a tiny number, representing a hobby. AppleTV and the iAd platform both allow Apple to learn how to compete in this arena, and represent investments in the future more than they represent current profit centers. Apple predicted iAd not being meaningful to the bottom line in 2010, but offering an opportunity for Apple to learn about the advertising space.

App Store and iTunes Store still exist to make the products more valuable, not to represent a major revenue source. Both operate at slightly above break-even (recall, Apple transmits lots of free apps and doesn't yet share any ad revenue).

In short, Apple is rocking along very nicely. Apple's announced iPhone OS and accidentally-released hardware suggest that Apple's future product releases are going to be well-received. I'm definitely still in for the long term.

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