Why Facebook's Falling Share Price Really Doesn't Matter
Mark Zuckerberg and Priscilla Chan: A Romantic Facebook TimelineYesterday evening I went to see the movie Transformers with my 11-year-old son. (I think he will be broadcasting to every kid he sees today that it is a must-see.) Before the movie we visited the Apple Inc. (NASDAQ: AAPL) store a few doors down from the movie house. It was crowded and the whole store had been transformed into an iPhone store. The wall banners, storefronts, and the first product table by the door were dedicated to the new phone and there was a security guard hovering around the display table.
We played with the phone for a while and it has some impressive features. I think it is clearly a marketing success, and is so different from all the other phone options that it is likely to blow past Apple's projections of sales in the ten million range through the first 12 months. I do not think it would be hard to imagine 20 to 25 million units sold in the first 12 months. Many of my colleagues have been huge Apple stock promoters, the most enthusiastic Georges Yared has taken the lead in this respect. If you followed his lead you made money.
From my own value perspective I could not justify buying Apple but that is not to say that by some measures there is not value. So I decided to take a look at the metrics and here is my read on the stock now.
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Price-to-earnings P/E (TTM) 34.71
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Price-to-sales P/S (LFY) 3.85.
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Price-to-book P/B (LFY) 6.55
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Price-to-cash-flow P/CF 32.20
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Return-on-equity ROE (TTM) 22.85
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Profit margin: 10.3%
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Dividend: none
Looking at these numbers I still can not find anything to get excited about from a value perspective. So I must leave this stock to those willing to bank on Steve Jobs, the "cool product hyperactivity factor," incremental growth in iMac, iPod, iPhone, iTunes and whatever iNext big thing factor comes up which seems likely. What does the iPhone add to Apple stock value?
If Apple does sell 20 million units this year at $500 retail and makes $75 per phone (50% higher than its overall margin and excluding AT&T share) it will add $1.5 billion to earnings. This is wild speculation on my part but does have some basis in fact. Allowing for the continued P/E of 30 the iPhone would contribute about $45 billion to Apple's capitalization. I think at least half of this is figured into the stock now and the current capitalization stands at $113 billion. But this does allow for another $22.5 billion which would give reason to believe that Apple could move upward somewhere between $145 to $150 per share within a 12 month period. It closed at $127.17 on July 3, but is trading up over $130 per share during the July 5 session.
One last note, having played with the iPhone myself now, I think the name is great for marketing but not accurate in terms of function. The iPhone is more a portable media center or information center than a phone. As a phone I believe it is inferior to most of what is on the market today in many respects. However iMedia does not have the same pizazz. For those simply wanting a mobile phone or PDA I do not think this phone is for you. I also think the glare on the screen presents problems outdoors or under bright lights. Finally, if cell phones present a higher incidence of driving accidents, then I believe the iPhone will magnify this risk by a significant margin.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 2 of 2)
7-05-2007 @ 11:17PM
GreenMe said...
I liked the phone and I am a great fan of iPhone. But now when the iPhone fever faded a bit, I think about cost of replacing the phone battery, which is around $70 some - I think that is a lot. Also when I am going to buy anything for $500, I expect to use it for couple of years. As anyone who uses a cell phone knows how often we drop them or have scratches on them. After looking at all the factor,I would think twice before buying such expensive phone (w/o any discount from AT&T) inspite of loving this phone.
7-06-2007 @ 7:50AM
Ross said...
Sheldon,
You clearly do not own an iPhone, because if you did, you would know that the glare is a non-issue in sun light or any bright light. The phone clarity in the light is far ahead of any other phone - it's almost as if the icons are painted on the screen. Please do not make sweeping generalizations on a product you do not own or have used extensively. I would say keep to your expertise, but your financial dogma is irrelevant for a company that is continually leap-frogging over other competitors (and I use that term loosely).
RC
7-06-2007 @ 10:43AM
Sheldon L said...
Ross,
You clearly know nothing or had even read the article with any understanding. I was quite favorable about Apple and the iPhone. I said the phones would sell at least at double the pace Apple itself said. I said that the profits would be 50% higher. I said I tested the phone. Hmm what else, We have iMacs, iPods, iTunes (of course) and my daughter is the iPhone owner. I don't think there is any lack of support for Apple by me or anyone in our house.
There is a difference between objective analysis and being a blind follower.