Are the Times and the Journal listening to the Apple (AAPL) conference call at all?
That's my thought when I read a headline like "Apple Reports Declining Profits and Stagnant Growth Again." Or when the Wall Street Journal quotes Richard Kramer, no relation for certain, saying " It's not a matter of if but when Apple gets hit in China."
Ahh, I get it: still one more awful quarter of iPhones with almost zero growth and a cliff coming in China.
The problem with these two storylines?
How about the fact that China actually accelerated and there's no signs whatsoever of a boycott? In fact, you could argue that the whole Apple ecosystem in China grew stronger as the quarter went on, or the company wouldn't have provided such robust guidance.
And the New York Times? Does the paper not understand that the service revenue is the focus and it grew 18% after taking out a one time gain that was anniversaried and a staggering 300 basis points in currency exchange.
The service revenue plus the wearables revenues are juggernauts. Tremendous growth in Apple care, Apple music, cloud services, the app store and ads on the app store. Plus there's the rollout of the card beginning tomorrow.
You are talking about 420 million paid subscriptions.
Or wearables. How about wearables, $15 billion in sales in the last year for wearables as AirPods and the watch - 50% growth there crushing the category. Yes the iPhone scored a $26 billion and that's all these folks seem interested in.
But I think the wearables and services, call it $15 billion together, is growing so fast that we must begin to realize that the hardware is a razor to the services and wearables.
With 99% satisfaction for most of its product, Apple will be able to grow that revenues stream even faster. The card, which I am betting is a huge hit, isn't in the numbers. The health apps taken as a bundle and charged for, can easily be worth at least $10 a month. Apple's plan is to win the health care category first and no matter how hard I push Tim Cook he seems very reluctant to charge for saving lives. I think it's a mistake. But if it is just a matter of time, I am cool with it.
Let's see, though, let' try to do some back of the envelope algebra. Try because Apple doesn't break it out to make it easy.
You have an installed base of very satisfied 1.5 billion customers. If you have sold 420 million subscriptions, how many of those subscriptions are taken on average by one person?
We do not have that number.
We need to solve for x, you can figure out that lifetime value.
Layer on the Apple credit card and the brand new Apple TV, plus the speculative Apple health stream, and what do you get?
Simple: More than the iPhone. In fact, I figure by 2021, we will be talking about how Apple Razors did and how blades did.
Procter & Gamble (PG) has a 24 price to earnings multiple and is growing at about 4% organic.
Apple's consistent service revenue stream is growing much faster.
Let's give it a haircut because you have little organic growth at the big portion - cellphones - right now. Let's give it four turns down.
Average calendar year? Let's knock that down from $13.51 to $13 to take into account the Times/Journal view.
What do you get? How about $260.
I know this isn't back of the envelope. It's back of a postcard.
But it's a better approximation of what you will pay for a more certain earnings stream than you have even taking into account China's slowing - WHICH IT ISN'T.
We will all try to figure out what this company will be worth.
Giving haircuts to everything I get this $260 number.
How about you?