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How Apple Can Keep Growing at 90% Annually

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This is a presentation from March 15th about the next growth areas for Apple. It led to a later Forbes article I wrote on why I think Apple's stock is going to $1,650 by the end of 2015. I don't think …

This is a presentation from March 15th about the next growth areas for Apple. It led to a later Forbes article I wrote on why I think Apple's stock is going to $1,650 by the end of 2015. I don't think Apple can keep growing at 90% a year, but 60% seems doable.

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  • 1. 1How Apple Can Keep Growing at 90%AnnuallyThe Next Growth AreasMarch 15th 2012
  • 2. 2• Isn’t Apple Too Big To Keep Growing This Much?• How Is It Possible?• What are the Growth Areas from Existing Portfolio?• What are the Greenfield Growth Areas? Table of Contents
  • 3. 3• Why Apple Can’t Keep Growing:• Unprecedented• Too Big• No More Steve Jobs• Everyone likes it; it’s a bubble Why Apple Can’t Keep Growing
  • 4. 4• Why Apple Can Keep Growing:• Unprecedented  But no company this big has had these opportunities• Too Big  Yet all Apple does is win• No More Steve Jobs  Yet Steve’s greatness masked how good rest of the team is• Everyone likes it; it’s a bubble  Still cheap with a forward P/E of 11x and a trailing P/S of 4x Why Apple Can Keep Growing
  • 5. 5It Can’t Be Done – But They Keep Doing it 140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Dec 10 Qtr Mar 11 Qtr Jun 11 Qtr Sep 11 Qtr Dec 11 Qtr Apple Quarterly Growth Y/Y in Net Earnings
  • 6. 6How Is It Possible To Keep Growing Earnings 90% per Year? 400 350 300 250 200 150 100 50 0 Y2011 Y2012 Y2013 Y2014 Y2015 Projected Apple Net Income in $B – 90% Y/Y vs. 65% Y/Y
  • 7. 7Apple Products Sold In Last 3 Years80706050 Mac40 iPod iPad30 iPhone2010 0 Y2009 Y2010 Y2011 Units Sold in Millions
  • 8. 8What are the Growth Areas from Existing Portfolio?• Macs• iPad• iPhone• iTunes What are the Growth Areas from Existing Portfolio?
  • 9. 9Mac Growth:• One of the most ignored parts of the Apple portfolio• Has consistently grown faster than the PC industry• Grew Revenue 26% Y/Y in the Last Quarter and 22% for Last Year• PC Industry growing 10% annually• Huge opportunity to grow market share in the years ahead Mac Growth
  • 10. 10Mac Halo Effect to Speed Up 60 50 40 30 20 10 0 Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015 MM of units sold or projected
  • 11. 11iPad Growth:• New Category created from scratch 2 years ago, now 20% of Apple’s revenues• 55 million devices sold since inception• Likely 58 million iPads will be sold in this fiscal year• iPad trying to achieve iPod market share• A 500 million tablet market in 2015 means 300 million iPads with 60% share• For comparison, 409 million PCs were sold globally in 2011 iPad Growth
  • 12. 12From Nothing to 300 Million Units Sold in 7 Years: iPad350300250200150100 50 0 Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015 MM of units sold or projected
  • 13. 13iPhone Growth: Driven By Smart Phone Adoption• 53% of Apple’s revenues from announcement 5 years ago• Likely to remain 44% of Apple’s revenues by 2015• Smart phones will be every person’s dominant computing device• 72 Million iPhones sold last year, yet could sell 6x that in 2015, assuming 1.5 billion smart phones will be sold and Apple retains a 32% share iPhone Growth
  • 14. 1410x 2010’s iPhones To Be Sold in 2015 500 450 400 350 300 250 200 150 100 50 0 Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015 MM of units sold or projected
  • 15. 15iTunes Growth:• After Macs, the most easily forgotten part of the Apple portfolio• iTunes had $2 Billion in net sales last quarter; Facebook had $1.1 Billion• iTunes last quarter of revenues was 1/5th the amount of Google’s total revenues• iTunes growth tags along from the number of active iOS devices• If devices explode, so will iTunes  $32 Billion in revenue by 2015• Will they do something different for iTV? iTunes Growth
  • 16. 16iTunes Revenue Set To Explode with New iOS Devices Sold $35.00 $30.00 $25.00 $20.00$B $15.00 $10.00 $5.00 $0.00 Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015 iTunes $4.03 $4.94 $6.31 $9.82 $14.74 $21.88 $32.09 % of Rev 9.39% 7.57% 5.83% 5.50% 5.00% 4.50% 4.00% iTunes Revenue Set to Explode
  • 17. 17What are the Greenfield Growth Areas?• iTV• iAd• iPay• Siri What are the Greenfield Growth Areas?
  • 18. 18iTV Growth: The Market for PCs and TVs Today 700 600 500 400 TVs Sold 300 PCs Sold 200 100 0 2011 2012 2013 2014 2015 Projected future TV and PC Growth – in MM of units sold
  • 19. 19iTV Growth: The Meeker Effect is Real 140 120 100 80 60 40 20 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 iPhone iPad iTV iTV Growth: The Meeker Effect is Real
  • 20. 20iAd Growth:• Apple has seemed to be conflicted about getting into Ad business• Jobs referenced need to help developers and making quantum leap in ads as reason for Apple to do it• Jobs was right though that the key is Emotion and Interaction• We’ve yet to really see this though from ads – even from Apple• If Apple is going play a central role in TV, they need to step this up iAd Growth
  • 21. 21iPay Growth:• Huge inefficient market waiting to be disrupted• Unlike Google, Apple waiting to do this right• PayPal expects Apple’s entry and has been seeking to differentiate itself as vendor- neutral mobile payment provider• Will require more than a credit card linked to an iTunes account• Just shaving off the percentage fees to credit card companies would save Apple billions from its retail stores• Could decide to do something totally new in mobile location payments area iPay Growth
  • 22. 22Siri Growth:• “Google Killer” as it bleeds away reliance on desktop index search to get information• Siri itself won’t be a money-maker for Apple• But it will build powerful loyalty among users to Apple products• Even more powerful when it becomes the interface to your TV and your house Siri Growth
  • 23. 23Projected Apple Product Mix in 2015: iPod 0% iPay iAd Mac iTunes 4% 3% 8% 5% iPad iTV 20% 16% iPhone 44% Projected Apple Product Mix in 2015
  • 24. 24What Will $610 Billion in Annual Revenue Look Like in 2015? $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 iPhone iPad iTV Mac iTunes iPay iAd iPod In $B
  • 25. 25Apple’s Price-Sales Ratio Over Time: Likely at a Top Now 54.5 43.5 32.5 21.5 10.5 0 Y2008 Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015
  • 26. 26Conclusion• At a 2.5x compressed price-sales multiple, Apple can easily get to a $1.53 Trillion market capitalization by 2015 – or $1,646/share representing a 183% increase over today’s price• iTV’s growth should exceed the success of iPad• Feature phone decline opening door to massive iPhone growth• iPad could be close to the current size of the PC industry in a few years• Macs will grow share in PC industry through Halo Effect• iAd and iPay are wildcards here; both have potential to be massive Conclusion