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.

  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. disappointing quarterly performance in its S-1: https://investorplace.com/ipo-playbook/facebooks-s-1-shows-a-weak-q1/
  3. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  4. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  5. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  6. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  7. CHL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHL
  8. roughly 1.7% dividend: http://investorplace.com/2012/03/does-apple-dividend-sigwnal-end-of-growth-aapl/
  9. “The Complete M&A Handbook”: http://goo.gl/aLNDk
  10. “All About Short Selling”: http://www.amazon.com/All-About-Short-Selling/dp/0071759344/ref=sr_1_1?s=books&ie=UTF8&qid=1302184310&sr=1-1
  11. “All About Commodities.”: http://www.amazon.com/All-About-Commodities/dp/0071769986/ref=ntt_at_ep_dpi_10
  12. @ttaulli: https://twitter.com/ttaulli
  13. email: mailto:tom@taulli.com

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