Once Again, Apple Walks the Walk

by Tom Taulli | April 24, 2012 5:37 pm

Facebook could learn a thing or two from Apple (NASDAQ:AAPL[1]) — specifically, how to back up the hype.

A day after the social network revealed a disappointing quarterly performance in its S-1[2], Apple turned on the afterburners with its Q2 report.

Earnings of $11.6 billion were almost double last year’s profits and, at $12.30 per share, crushed Wall Street estimates of $10.04 per share. Revenues of $39.2 billion were up almost 60% (note: Facebook’s growth rate was just 45%) from the year-ago period and also cleared estimates for $36.8 billion.

Once again, Apple looks more like a hot startup than most startups — and certainly not like a company that has been around since the ’70s.

Going into the earnings report, there was lots of trepidation on the part of investors. Since a peak at $636 on April 9, the stock fell by 11% — good for a whopping drop of $71 billion in market cap — and even dropped an even 2% Tuesday before the report.

Investors clearly aren’t worried now. AAPL shares were up about 7% in early after-hours trading.

One of the previous concerns about Apple was the possibility that AT&T (NYSE:T[3]) and Verizon (NYSE:VZ[4]) were moving away from the iPhone. While this might be true, it didn’t make much of an impact in Q2 — Apple sold a whopping 35.1 million iPhones in the quarter, 88% better than a year ago.

Of course, the company also saw strength in the iPad, which saw unit sales of 11.8 million — a growth rate of 151%. And consider that the iPad 3 was sold for only a couple weeks in the quarter.

Apple’s pricing and negotiating powers have translated into impressive gross margins, which have increased from 41.4% to 47.4% in the past year. Apple also generated $14 billion in cash flows from operations, so now the company has a fat $110 billion — with a “B” — in the bank.

And despite the growth, Apple still has a valuation of just 15 times earnings, which is pretty cheap in light of the company’s sizzling growth rate. Consider that blue chips like McDonald’s (NYSE:MCD[5]) and Coca-Cola

(NYSE:KO[6]) have heftier valuations — and while they’re successful, their growth rates aren’t even in the same universe as Apple’s.

Looking ahead, Apple is expected to launch the iPhone 5 in the fall, which is sure to go gangbusters. The company should continue to get traction in burgeoning China, too, and its deal with China Mobile (NYSE:CHL[7]) is likely to provide lots of room for growth.

And don’t forget — Apple soon will sport a roughly 1.7% dividend[8] (based on current valuations).

Tech is never a sure thing. But Apple comes as close as you can get.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”[9], “All About Short Selling”[10] and “All About Commodities.”[11] Follow him on Twitter at @ttaulli[12] or reach him via email[13]. As of this writing, he did not own a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2012/04/once-again-apple-walks-the-walk/

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