Hmm, What Is Apple Doing?

Prices are not controlled by company, it is the reflection of market players, users.

With exceptional results and future growth, aapl dropped 30%. Market may react on sensational news, but not controlled by company,

It is hard to go through valuation like aapl or FB.

Like TSLA, we cannot value NFLX or AMZN. You need to look 20 years from now to understand TSLA growth.

What TSLA technology is like google technology- an innovation!

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Someone wrote about Apple, copy and paste here.

Bull case for AAPL

AAPL is worth about $800 billion right now. We’ve all seen the news about peak iPhone, China worries, ect. All those are true. For me the bull case for AAPL comes down to one thing: BUYBACK.

With the new tax rules, Apple’s cash is no longer stuck overseas. They have full access to the $250 billion in the bank without paying additional taxes. The Apple CFO already said they were committed to going cash neutral. In other words have enough cash to cover long term debt. As of last quarter Apple had about $125 billion in net cash.

Last year AAPL generated $77 billion in cash flow from operations. They paid $14 billion in dividends. Bottom line is Apple is generating mountain loads of cash and they will continue to generate $60-$75 billion in free cash flow from operations for many years.

Think Long Term.

Lets say worse case the share price stays flat or even drops another 10-20% the next year. Could easily happen. But that actually helps not hurts the bull case of buybacks. It means Apple has buyback more shares at cheaper prices.

If Apple stays at about $800 billion market cap Apple should be able to buy a huge chunk of shares the next 10 years.

Apple has $150 billion in cash to buy shares right now.

Apple generated $77 billion in free cash flows from operations last year. Even if profits/sales stay flat or even drop 5%-10%, they would still be generating over $70 billion in cash a year. Lets be conservative and say Apple uses $30 billion on dividends and investments a year. That leaves over $40 billion a year for buyback.

10 years x $40 billion = $400 billion + $125 billion in current cash.

Apple could buy 66% of the outstanding shares if the stock price remained flat. And over 70% if the stock dropped. Apple could even get more aggressive and spend an additional $50 billion and just hold a larger debt/asset ratio. They could buy 75% of outstanding shares. And what if Apple actually grows revenue/profit?

If Apple buys 75% of its shares and the company’s market cap is flat at $800 billion, the price of the shares will go up 400%.

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Yes, during the next 10 years Apple can buy its shares at constant 2018 price but somehow share price will go up 400%?

What kind of fuzzy math is this? :exploding_head:

Simple Math.

2018 => Market Cap = 800 Billion, No of shares = 4.92 Billion shares, each share = $162

Apple buys 75% of shares = 3.69 Billion shares buy back, balance shares are 1.23

2018 => Market Cap = 800 Billion, No of shares 1.23 Billion shares

Your share worth 800 B/1.23 B = $650 = 4 x 162 (appx)

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And how much does it cost Apple to buy back 75% of its shares?

Not constant price. Constant market cap. Using accumulated retained earnings to buy back shares reduce market cap but should not if buy back money is from cash generated from current operations.

New market cap = $800B + cash generated from current operation
Author is saying use all the cash generated to fund dividend payout and buyback share.
So market cap should remain constant.

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Price is not constant. That’s exactly my point. The author’s math is deeply flawed.

If you assume constant market cap at 800B, and there’re only 10 shares left, each share will cost you 80B.

The author knew this, as he concludes share price will go up 400%. But yet he assumes the cost to Apple’s buyback program is a constant 2018 share price.

Elementary error like this tells me I don’t even need to bother with the rest of his arguments.

I agree as this is only approximation, not 100% right, but the idea is practically working out. Apple has become cash flow machine generating 50B - 70B cash producing.

manch wants to show that he is financially savvy. Might as well challenge that since business is in decline, cashflow generated would be declining at a rate of 10% :smiling_imp: and market cap can’t be constant and in fact should be declining since biz is declining hence should be increasingly worth less.

Yup, a company that has no better use for its cash other than dividend and buyback sounds like a dying company. It will be cheap, and getting cheaper.

I am most curious what Apple’s sales in China will be in Chinese new year. Only 2 months from now.

This is where WB wins, we will come to know how much he bottom fished AAPL by around Feb 15, 2019.

WB also bought Oracle. :smiling_imp:

Oracle = 2 B,

Apple = 57 B

Big difference.

Silicon Valley is increasingly tackling the really hard problems with high regulatory bar to entry.

No more low hanging fruits. Having said that, obviously Apple is serious, COO Jeff Williams is personally in charge of the healthcare initiative.

Here is one of the best pages on Apple DCF model

https://seekingalpha.com/article/4180317-apple-dcf-model

Microsoft has a higher yield than Apple, with a higher market cap to boot. :smiling_imp:

Amzn has no yield and a lower market cap though.

Proof? Can you explain what yield you are talking?

Motley Fool post

Below $180 Apple stock is a buy and an attractive one !

Apple stock is worth about $210:

Free cash flow growth of about 4% annually over the next 10 years
Free cash flow of about 3% annually in perpetuity beyond year 10
A discount rate of 10% used to calculate the present value of future cash flows

For this market leader, a 16% margin of safety is plenty.

If I guess right, when FED is not raising rates on Dec 18-19th, all stocks will go up there after. Until then, whatever stocks we grab, are the last chance to get a deal, esp low priced AAPL at $169 range.

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