21 April, 2010

Sales Momentum ramps for Apple as iPhone powers earnings

Apple (AAPL) sells a couple products that it labels with the term 'magic', its multi-touch mouse and new iPad Tablet, but after the company's March quarterly earnings, reported Tuesday after the market close, sales of Apples seem out of a fairy tale.

Analysts Wednesday morning have been pushing over themselves digesting the news and raising price targets further. RBC now joins the highest estimate on Wall Street with its brand new price target of $350 for the Cupertino electronics company. Several other firms including Piper Jaffray, Oppenheimer and J.P. Morgan pushed through or moved higher than $300 as well. And after dissecting Apple's report there are many compelling reasons why.

First though, what about the quarter? Well let's recap expectations coming in and see just how handily Apple beat them.

Financial Metrics
exp. $12.06 Billion in Revenue <-> $13.5 Billion in Revenue
exp. $2.45/share in Earnings <-> $3.33/share in Earnings ($3.07 Billion in Profits)

Unit Metrics
exp. 2.7 Million Macs <-> 2.94 Million Macs
exp. 6.8 Million iPhones <-> 8.75 Million iPhones
exp. 9.0 Million iPods <-> 10.89 Million iPods

An astounding financial performance by any measure expected by Wall Street professionals. Apple's sales momentum is at an all time high and the product mix the company has to offer is striking the right chord with consumers even during a time when retail spending hasn't fully begun its recovery, due to continued high unemployment and the global economy's sputtering into growth.

The real story here is the strength of the iPhone. With the AppStore under its wing, the massively popular platform continues to grow in International and Domestic markets. Growth numbers are almost double overseas for Apple as it continues to add more carrier partners and branches into business models that include multiple-carriers in the same country, something it has yet to do in its home market, the United States. The upside surprise on iPhone sales, given its $600 Average Selling Price accounted for the vast majority of the $1.5 Billion in Revenue that Apple over-achieved this quarter.

But just to get back to the numbers, beating the street is one thing, but crushing expectations to this magnitude is quite another. Apple's own guidance is always conservative to the point where one wonders when they will stop giving any at all. For the concluded quarter Apple brass presented the street with ranges of $11 to $11.4 Billion in Revenue and $2.06 to $2.18 in EPS. The street's expectations were
5-9% higher on Revenue and 12-19% higher on EPS, so it's not as if Wall Street is just marching to Apple's expectations drum. The company however, does very well in controlling and managing expectations, it does well in controlling just about everything it can, well except for the massive leak of the next generation iPhone that was widely reported on gadget blogs and Apple faithful websites.

The fact that Apple beat the street's already higher estimates by 12% on Revenue and 36% on EPS is the kind of operational performance that makes the company among the most admired in the world, and leads to the collective fawning markets are seeing this morning with Upgrades and Price Target hikes. Of course Long Investors are just as thrilled about the 6% move in the stock to an all time high near $260.

The first 6 months of a new year are typically seen as 'seasonal' by the industry but the only thing seasonal now is the collective scrambling of Wall Street's major analysts in their re-writing of the rules of the road for Apple future estimates and valuations. In the press release, CEO Steve Jobs touted having several more extraordinary products in the pipeline for this year and so far the smart money's on the cats-out-of-the-bag 4th Generation iPhone. The company also has previewed its next iPhone Operating System, improved its high selling MacBook Pro line of laptops and is likely nearing the 1 Million in sales mark for its iPad device after just going on sale mere weeks ago. The upcoming quarter includes the launch of the iPad with 3G networking, the International launch of the iPad and likely invitations for the next iPhone announcement, expected in June.

Apple continues to be a must own Technology stock and one that is running with a Sales and Product tailwind unlike any in its history. But with all the love, who's left to buy it? With quarterly performances like this one, somehow, somewhere, investors will continue to be found.

Disclosure: Author is long AAPL

15 April, 2010

Google beats, but drops after-hours.

Mighty Internet and search Titan Google (GOOG) posted quarterly earnings for Q1 2010 and the stock was met with a 3% sell off in after hours trading. Google has been moving higher with the Technology Sector throughout the last week, moving 5% higher in 5 trading sessions to close today at $595/share. With options traders glaring at tomorrow's expiry date, Google's typically high expectations during earnings, and its typically low-brow approach to reporting them, lead traders to some volatile and erratic activity.

So what was in store for Google's Q1? The US is starting to create jobs again, the economy is back growing, and even retail numbers have been looking good, smells like recovery to this writer, and most recently, even to Jim Cramer! Google was expected to earn $6.56/share on a Non-GAAP basis, which would've represented a 27% growth rate on a year over year basis ($5.16 in Q1 2009). As for total numbers, Revenue expectations were for $4.93 Billion and Income went for $2.7Billion according to analysts on the street.

Google's Non-GAAP earnings came in at $6.76/share, $0.20 higher than expectations, representing 31% growth year over year. Revenue and Income were marginally ahead as well at $5.06 Billion and $2.78 Billion. Representing estimate beats of 3% on EPS, 2.6% on Revenue and 3% on Income. Not exactly setting the barn on fire! Or is it that analysts are starting to get the steady climb of Google's one stop shop money printing business? It's a bit of both you see, Google has yet to find another product or service that generates enough meaningful Revenue and Income to truly surprise analysts now and with the background checking done by Wall Street at Search Engine Marketing firms and a wealth of advertisers things are proving easier to predict and a good barometer of quarterly performance.

In the past, estimates would creep up over the 60 days period to something reasonable and then Google would have a chance to show case its money making prowess, but this quarter estimates 60 days ago were already at $6.50 according to Yahoo Finance. Until Google hits another Revenue home run, and maybe YouTube will be it someday, Analysts wont have too hard a time charting the growth trajectory. Which is why Google's stock has been hit 3% on this modest earnings beat.

Investors should spend some time looking at the cash generation abilities of this company and its grand scale future plans, moreso than a quarterly statement. Generating $2.5 Billion in Cash Flow over the Christmas quarter, Google has followed that up by generating $2.3 Billion in Cash Flow for its Q1 of this year. The fact that this Advertising behemoth is on pace to generate $10 Billion in cash this year through simple text links (mostly) is a remarkable business study, and one the next generation of web properties are trying to get in on quickly (read: Facebook & Twitter). And with a cash horde of $27 Billion, Google has plenty in the bank for any sort of Thor type thunder that might near it--Marvel fans.

Google's forays into other businesses thus far have paid little fruit comparatively but the growth rate in Revenue tells an interesting story. Total Revenue has grown 30% in the last two years at Google, while the category of "Other", which includes Google Apps, Licensing and all the various side projects that aren't advertising have grown from $100 Million to $300 Million (a rate of 200%). It is this kind of growth trajectory that will get Analyst attention in the coming quarters if Google continues to push products and services in other genres than Search.

Google investors were fine before this quarter and they'll be just fine after it. Google is absolutely a company with long term vision, that is now settled in a mature (but rapidly evolving) multimedia advertising business. The ubiquitous nature of the Internet and its availability on phones, pads and all else under the sun, puts the Google brand front and center in people's lives. With that placement and clout, comes the assumption that the cloud is the future of computing, complete privacy is a long gone myth, advertising means the same as subsidy and the fact that the ad becomes a necessity for the convenience and convergence of a connected world. If that's believed, Google's one of the best future-proof investments to have.

Disclosure: Author owns GOOG.

05 April, 2010

Loaded post-Holiday Monday for Media and Markets.

Traders are back in their seats Monday with an upbeat jobs report behind them and Treasuries pushing the magical 4% yield number. All this on a day where the Duke Blue Devils face off against the Butler Bulldogs for College Basketball's biggest prize, Tiger Woods has his first real press conference as Master's week begins and the Baseball Season begins with with the fiercest rivalry in the MLB, last night's opener of Yankees-Red Sox.

Gains in payrolls for the month of March of 162,000 signaled the biggest job increase in multiple years and certainly the most optimistic look for an economy devastated by millions of job losses in the 2 years. Yes, the Government sponsored Census had a part to play, as by some reports, the number of temporary workers hired has been reported near 48,000, but the underlying trend is much improved. The numbers from January and February were revised much higher also, with January turning a 26,000 job loss into a 14,000 job gain and February reducing its loss to only 14,000 from a previous estimate of 36,000.

On this positive data US Treasury yields for the 10-year flirted with the 4% mark. The first time in 10 months that this has happened. Another area creating highs was Energy, as Crude Oil prices pushed to 18-month highs of $86 a barrel.

Investors have a lot to look forward to today not market related, as sports and news take center stage. Opening day of the baseball season is sure to grab some attention away from Bloomberg terminals this afternoon as is Tiger's first full press conference since announcing he returns to play in the Masters. His first Golf Tournament since the infamous car accident and continued fall-out from his grandiose sex scandal. All the while, sports fans across the United States prepare for this year's College Basketball National Championship game tonight between the Blue Devils of Duke and the Bulldogs of Butler in Indianapolis, IN.