"Apple released results for their second quarter for the 2014 financial year last evening. The numbers, all except for the tablet, are eye popping, selling more iPhone's than anticipated, 43.719 million iPhones for the quarter in total. Estimates were for 37.7 million. Wow. China sales were strong, including demand for the prior model, the iPhone 4S is selling well in that geography. Strong performance too in emerging markets, really strong. It is a strong business tool now, with mention being given to Deutsche Bank and Elli Lilly on the earnings call."
"Facebook now have 1.2bn subscribers, who else has that many clients? The potential is infinite to connect almost any facet of life whether it be virtual communication, mobile payments, internet connections, gaming, retail, music and many many more. Communication is the core of our human existence and Facebook are about to make Billions from it. By proving that they can monetise mobile I think The Zuck and his management team have proven themselves (not that they had to) to be very smart a savvy operators. They have certainly earned my trust, we continue to add to this one."
To market, to market to buy a fat pig. Back from the mother city and the surrounds, ran the worlds most beautiful ultra marathon (I saw some of you) and then I took the family into the Klein Karoo where my parents live. All in all a wonderful break and because I have not been there too often, it is always good to see progress. Progress in the form of throngs of tourists (we were tourists ourselves), better public transport for both the visitors and the locals, I am embarrassed for our city to say not a pothole in sight. And all the traffic lights worked just fine, they really did.
Cape Town, the segment inside of the city bowl and the Atlantic Seaboard is almost detached from the rest of the country. In a good way, I don't mean that badly for the wonderful folks that live there. Natural beauty is something that you cannot replicate and tourism must continue to be embraced and something that we must continue to encourage, people spend hard earned money on our shores, and they must be made welcome. We are of course doing much, and it can be a huge job creation sector, the powers that be certainly recognise this. Wonderful.
As for the Two Oceans, my time was perhaps slower than I would have liked, but all things considered, happy to be back. The 10 year break between the last one showed me that the race is indeed very commercial now, that is a good thing. Plenty more international runners, spending their time and money here. Near the end I had a very short interaction with the MTN South Africa CEO Zunaid Bulbulia about him being outspoken on the spend of the mobile companies in South Africa, I thanked him, and referred to the TechCentral piece. He said I was in the minority and he wished more people saw it my way, he wished there were more people like me he said. To which I replied, No Sir, I wished there were more people like you. Next year we should both work on our training and run faster! Ha-ha!
Markets locally nearly crested the 49 thousand point mark, even though the absolute level of the index does not really matter, the truth is that everyone keeps a scorecard of their investments, relative to the index. You need a benchmark in order to ascertain whether you are on the right track, but in my opinion 12 months is way too short a time to determine whether you have the right mix of stocks.
In the US, stocks ended their positive streak, tech stocks fell, they have been really volatile as of late. David Einhorn has just declared that we are in another tech bubble, not all stocks specifically, but he has his specific stocks. Hey, why would you want to argue with some serious investors who have skin in the game. This is very different from someone crying foul of valuations on a public platform who has no vested interest. Why? Because this means that he has something to lose, should their bets against high flying tech stocks go wrong. He has called these companies as a collective
"The Bubble Basket".
Einhorn refers to
"the rejection of conventional valuation methods" and
"short-sellers forced to cover due to intolerable mark-to-market losses" as to reasons why he smells another bubble. I wonder which stocks he does short, because he does not make that clear. In his newsletter, which you can read here,
Greenlight capital newsletter, Einhorn points out that Cisco and Amazon fell around 90 percent when the bubble bursts. And in his specific criteria for this basket, they have identified stocks that could fall 90 percent.
Einhorn suggests that whilst he does not expect a complete repeat, the rewards outweigh the risks with regards to shorting these companies. On that list is possibly stocks like Twitter, Facebook, Tesla, LinkedIn, or is it further down the feeding chain? Companies like RetailMeNot, Groupon, XO group and the like? As Paul points out, the guy gets an enormous amount of attention, but his hedge fund manages only 10.3 billion Dollars, whereas someone like BlackRock, they hold trillions in assets under management. 4.32 trillion Dollars to be exact.
So, even if they (Blackrock) decide to allocate 0,25 percent of their assets under management to social media stocks (hypothetically speaking), that is 10 billion Dollars plus. Which is around the same amount that Einhorn allocates to the market, he clearly uses a lot of leverage, so it is more. All I am saying is that hedge fund managers get rock star status whilst those with the bigger sized assets and in truth, abilities to change the flows with larger chunks, they are ignored because their X factor is not as appealing. Still, people like Einhorn capture the imagination of the market, their media and all the other chattering class channels, like Twitter, ironically.
One of the most talked about retail products globally must be handsets, they go everywhere with you and they can help you with all sorts of tasks that you used to look out for elsewhere. From the weather to your friends, to news and updates on your stocks and the markets, there is an application for everything, but of course the beautiful devices in your pocket needs to be exactly that, beautiful. It is difficult to marry the term technology and beautiful, but somehow Apple have managed to do exactly that. And last evening, they reinforced the notion that it does not matter what your background is, we all share communication at our core.
Enough of that,
Apple released results for their second quarter for the 2014 financial year last evening. The numbers, all except for the tablet, are eye popping, selling more iPhone's than anticipated, 43.719 million iPhones for the quarter in total. Estimates were for 37.7 million. Wow. China sales were strong, including demand for the prior model, the iPhone 4S is selling well in that geography. Strong performance too in emerging markets, really strong. It is a strong business tool now, with mention being given to Deutsche Bank and Elli Lilly on the earnings call.
The company saw 16.35 million iPads sold, the one disappointment, whilst 4.1 million Macs were sold. For the quarter only. Quarterly revenue (45.646 billion Dollars) topped forecasts and guidance, Chinese revenue grew 13 percent year on year, in Japan it jumped a whopping 26 percent, and that is in Dollar terms. Profits were 10.2 billion Dollars (wow, just wow), whilst on a per share basis clocked 11.62 Dollars per share. Margins actually improved, gross margins improved to 39.3 percent. International sales accounted for 66 percent of the total, and that is in Dollar terms of course, some good and some bad, depending on which geography one is in. Cash? 150.6 billion Dollars in cash and cash equivalents.
iTunes and services related revenues grew 11 percent to 4.573 billion Dollars, it accounts for nearly one-tenth of all revenue. Once you are in the ecosystem, you are stuck inside for a while. Retention rates on iPhone customers in the US are above 90 percent, more than any other phone. They still managed to sell 2.761 million iPods, but for all intents and purposes this product is dated. And this points to the shelf life of certain products in the consumer technology space, from the walkman through to the pager. We tried to think of a few others here. VHS, BetaMax, dare I say the compact disc itself. iTunes will become a bigger revenue contributor in the years to come, along with the App store, more people in the Apple ecosystem increasing paying for these services and products. There are now 800 million odd iTunes accounts with credit card information. More than one tenth of the world has an iTunes account.
But, a lot of excitement was generated around
the boosting of the quarterly dividend by 8 percent and the accelerated and increased buy backs. 3.29 Dollars per share is what the quarterly dividend has been boosted to, that translates to 13.16 Dollars per annum. The closing price last evening was 524.75 Dollars, the yield then (historical) translates to 2.5 percent. Share buybacks have been boosted to 90 billion Dollars, which of course pleased activist investor Carl Icahn no end. He tweeted:
Yes. About those new products, Tim Cook suggested that new products are in the pipeline. They no doubt come with a lot of scrutiny from tech geeks, investors and the retail market alike. But if they are not completely wow, then I suppose it is not "worth" their while unless the product is in a sense beautiful. As Tim Cook also pointed out, they are not the leaders with products, they perfect the mainstream ones.
Apple did not invent the tablet computer, nor the MP3, nor the smartphone. The PalmPilot touch was in a sense the first tablet, MP3, was it the Zune from Microsoft? And the smartphone? Blackberry? Maybe that was the one. Tablet sales are hitting a wall, in a sense, but Tim Cook in the conference call felt that 210 million odd iPads sold in less than four years since the release, and it has been embraced by retail consumers, business users and education as well. And Cook is very bullish on the tablet, perhaps a second adoption, or replacement cycle will see sales grow sharply. See the
F2Q2014 Results - Earnings Call Transcript via SeekingAlpha, you will have to subscribe to check it out, but it is for free.
The other "big" thing is that Apple are undertaking their 4th stock spilt, the last one which took place was in 2005.
This time it is a 7 for 1 split. Your value does not change of course, you just get six more shares on top of the one, and the share price adjusts accordingly, one seventh of the prior day. No biggie really, but rather wanting to have retail clients with greater access to their shares. I am indifferent on that, but I get the reasons behind the thinking. June the 9th this year, pencil that in.
The market likes the share buy back boost, the beat in iPhone sales (the best non holiday quarter ever) and as such the share price has rocketed in after/pre market to 564 Dollars. That is up seven and a half percent. Clearly the market enjoys all of the news, and in my mind the stock is still really cheap. "Things" move quickly, but I get the sense that Apple products may have the ability to entrench themselves into peoples lives.
We continue to add.
Byron beats the streets:
Last night we received highly anticipated results from Facebook. It's ironic that Apple results and Facebook results are released on the same day because the efficiency of the Apple products have made the Facebook mobile experience just that much better. Conversely people want fancy phones so they can access and enjoy their Facebook. Both companies compliment each other well.
Lets delve straight into the numbers, brace yourself. Daily active users increased 21% year on year to 802 million subscribers. Mobile Daily Average Users grew 43% to 609 million year on year. More people are using the network more frequently. Monthly active users increased 15% to a whopping 1.28 billion. They reckon that half the internet world uses Facebook. Amazing considering they are not in China. 1 billion people are now mobile monthly average users, an increase of 34%.
This resulted in revenue growth of 72% to $2.5bn, $2.27bn of that from advertising. And here is the clincher, 59% of that advertising revenue came from mobile advertising. Who would have thought, they have managed to monetise mobile!! And they make money by the bucket loads, net income came in at $642 million, up 193% from this period last year. To put things into perspective, that is just less than what Bidvest makes in an entire year. This equated to Earnings per share of 25c. $1.09 is expected for the full year. The stock trades at $63.5 or 58 times this years earnings. Not cheap but hey, this business is growing fast.
I was very intrigued as to how advertising using the Facebook platform actually works. So I asked my dad who owns a couple of retail stores around Johannesburg, they import incredible furniture interior pieces from around Asia, mostly once off type pieces (blatant family punt). The business is called Sotran. He has a paid for Facebook page, which he pays R32 a day for. In return Facebook will suggest his page on peoples home screens. For instance if I like the Sotran page a percentage of my friends will be suggested the page dependant on their likes. The business is categorised as ‘interiors and household goods' so it targets people who have liked similar pages. If he paid Facebook a higher premium his exposure would increase and a higher percentage of people would be exposed to the page. It is a very powerful tool and the feedback has been great. The page has more than 3000 likes already. In my opinion that is much more effective and interactive than a website.
Knowing how it all works I am even more encouraged that this business is just going to go from strength to strength. And this is just the core advertising business. The Zuck has taken the Google approach by using the huge cash inflows to buy other businesses and diversify, whether they have potential synergies or not. They are hedging against change and slowly becoming a technology investment holding business, I have written about this before. On a side note Whatsapp has reached 500 million subscribers already.
Back to the now 1.2bn subscribers, who else has that many clients? The potential is infinite to connect almost any facet of life whether it be virtual communication, mobile payments, internet connections, gaming, retail, music and many many more. Communication is the core of our human existence and Facebook are about to make Billions from it. By proving that they can monetise mobile I think The Zuck and his management team have proven themselves (not that they had to) to be very smart a savvy operators. They have certainly earned my trust, we continue to add to this one.
Home again, home again, jiggety-jog. The market is up this morning, US futures are higher, Spain held an auction in which they raised money at a record low rate. Yes, Spain were finished, but now they can raise money at their lowest level ever. German IFO numbers were marginally better. Durable goods orders will be key later today, but these Facebook and Apple results will help!
Sasha Naryshkine, Byron Lotter and Michael Treherne