AAPL Market Cap: 626.33B Net Income (TTM): 53.39B ROE (TTM): 43.84% ROA (TTM): 20.25% PE Ratio (TTM): 12.21 Investment Analysis November 26, 2015 Company Description Apple Inc designs, manufactures, markets mobile communication & media devices, personal computers, portable digital music players, sells a variety of related software, services, accessories, networking solutions, & third-party digital content. Executive Summary Apple is in a very competitive industry, however this year they have managed to successfully launch the iPhone 6s and beat competitors in every operating segment including the declining ones. Furthermore, Apple has found great success in China and its percentage growth is in the double digits. Recommendation Investment Thesis iPhone revenues in FY 2016 expected to grow by 9% Apple stealing market share from competitors in the smartphone segment iPhone cannibalizing Apple’s product line Apple heading into the holiday season in China with its strongest product line Global internet usage is expected to increase in 2016
Transcript
AAPL
Market Cap: 626.33B Net Income (TTM): 53.39B ROE (TTM): 43.84% ROA (TTM): 20.25% PE Ratio (TTM): 12.21
Investment Analysis November 26, 2015
Company Description Apple Inc designs, manufactures, markets mobile communication &
media devices, personal computers, portable digital music players,
sells a variety of related software, services, accessories, networking
solutions, & third-party digital content.
Executive Summary Apple is in a very competitive industry, however this year they have
managed to successfully launch the iPhone 6s and beat competitors
in every operating segment
including the declining
ones. Furthermore, Apple has found great success in
China and its percentage growth is in the double digits.
Recommendation
Investment Thesis ὄ� iPhone revenues in FY 2016 expected to grow by 9% ὄ� Apple stealing market share from competitors in the smartphone segment ὄ� iPhone cannibalizing Apple’s product line ὄ� Apple heading into the holiday season in China with its strongest product line ὄ� Global internet usage is expected to increase in 2016
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Company Profile A leader in the technology sector, Apple Inc has continuously managed to crush competitors due to being a marketing powerhouse. They have managed to create and nurture brand loyalty throughout the world. Always pushing to innovate our lifestyles, Apple Inc is considered a leader in product design. Following a differentiation strategy, it has managed to price its products at premium prices. Recently Apple Inc has been facing an innovation crisis. The iPhone represents an alarming portion of the company’s revenue, as the iPhone is becoming a commodity product. The company is also facing issues with product cannibalization. The iPhone is eating into the profits of the tablets and laptops, due to the mobile industry growing so fast. Apple Inc is trying respond to this issue by creating and promoting complementary products such as the iWatch. Issues regarding internal product cannibalization have yet to be resolved. The current attempts are not sufficient enough. Furthermore, it has yet to find a product to replace the iPhone as a revenue driver, in view of the fact that the iPhone is coming to the end of its product life cycle. Failure to do so could be a signal that Apple Inc is heading into the mature market and leaving the growth one.
Industry Outlook
Key Economic Drivers
Global per capita Income
Emerging economies have a relatively low penetration of high-technology electronics. Therefore, an increase in per capita disposable income can generate strong sales growth for consumer electronic devices. Per capita disposable income is expected to increase in 2016 . In emerging 1
economies, old iPhone models are in still in demand due to its low price but it is hard for Apple to price itself as low as low cost competitors such as Huawei.
GDP of the BRIC nations
The level of economic activity and capital investment expenditure influences demand for electronics and electronic components. As incomes continue to rise in emerging and newly industrialized nations, such as BRIC nations (i.e. Brazil, Russia, China, and India), these countries are increasing their demand for consumer electronics. GDP growth of BRIC nations is expected to
1 Clients1.ibisworld.com,. 'Market Research Reports | Procurement Research Reports | Ibisworld US'. N.p., 2015. Web. 21 Nov. 2015.
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increase in 2016, representing a potential opportunity for the industry. This especially affects Apple, as 58% of Apple’s sells is foreign.
Global Consumer sentiment index
As consumer sentiment and spending recover from worldwide recessions, an increase in demand for industry products is expected as more people spend money on high value consumer electronics and discretionary products such as TVs, cameras and other electronics. Economic slowdowns in China, Japan and the European Union may temper consumer sentiment, despite increasing disposable income.
Technological change of the global entertainment sector
An increase in technological change for the global entertainment sector will increase industry demand as consumer electronics manufacturers develop and sell new products. Technological change for the global entertainment sector is expected to increase in 2016. However, some technological changes cause consumer electronics to converge into multi-purpose devices, posing a threat to some single-purpose industry products. Apple is facing issues with product cannibalisation.
Global internet usage
The number of broadband connections worldwide, or high-speed internet connections, has had a major impact on the number of televisions sold, given the rise of online streaming services. Now many viewers in developed economies can access television shows through additional devices such as computers, tablets and mobile phones. Global internet usage is expected to increase in 2016, representing a potential threat for the industry. While this poses a threat to the industry, it also presents an opportunity for Apple 8.52% of Apple’s revenues come from online services such as the iCloud . 2
Using a Porter's five forces model to analyze the consumer electronics industry (appendix II), we 3
came to the conclusion that the industry is unattractive due to three main factors: new entrants are able to easily enter the industry; a high level of competitions; and the amount substitutes. Certain products like smartphones can do everything and eventually all other products will become irrelevant and merge into one. innovation, differentiation and customer loyalty is how Apple addresses the unattractiveness of the industry and this is why the consumer electronic industry is attractive for Apple.
2 Similar to a hard drive but online The iCloud is an online service that stores documents, photos and ect on the internet for future use. 3 Global Consumer Electronics. (2015, April). MarketLine Industry Profile. Retrieved from
http://www.marketline.com
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S.W.O.T
Strengths
First and foremost, Apple’s most prominent competitive advantage is customer loyalty. They have managed to sell the same phone year after year with minimal changes to the product. Due to the fact that, It has managed to psychologically convey to the consumers that owning Apple products is part of a lifestyle.
Secondly, Apple’s financial performance has managed to surpass the top competitors in the industry. Its return on equity (TTM), return on assets(TTM), EBITDA (TTM) and diluted EPS (TTM) are in much better shape than its competitors.
Furthermore, Apple is recognized as the industry leader in product design and marketing.
Weaknesses
Apple has yet to justify its product pricing. Consumers started shifting to cheaper alternative. Alternatives such as the Samsung and HTC phones are catching up in terms of performance, specs and design at a cheaper price.
The high product expectation that Apple has created may prove to be the company’s biggest weakness.These high expectations mean that Apple can’t throw experimental products or services at the market without hurting its brand.This inability to iterate quickly makes it harder for Apple to innovate as rapidly as Google does in the service space or as fast as Samsung in the hardware space.
Since the death of Steve Jobs, Tim Cook has not managed to fill the leadership role that Jobs left behind. It is still unclear in which direction he is trying to drive Apple. Tim Cook has not managed to innovate. Apple’s latest attempt to innovate is the Apple watch and it has yet to impress.
Opportunities
The industry is at an advantages due to growing household incomes, particularly in emerging markets such as Asia, Eastern Europe and South America. This has supported demand for consumer electronics.
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The television industry is experiencing a consumer shift towards online television. This could help Apple TV to finally take off.
The industry is undergoing rapid growth in the number of users of smartphones. Consumers are becoming less reliant on computers to complete routine tasks such as checking emails, social media or the news. It is becoming necessary for content providers and websites to invest in app development.
Threats
Chinese smartphone manufacturers have managed to enter the industry with a low-cost strategy. They have succeeded at copying competitors while achieving economies of scale. Seeing that the industry is driven by innovation, they do not pose much of a threat as their investment in R&D is substantially lower than that of Apple. However, this could hurt the future sale of old iPhone models that are still selling mainly due to their low price in developing economies.
The USD is expected to remain strong, as the U.S economy is performing well. This could affect Apple’s revenues. This poses a concern in terms of competitive pricing of its products internationally, due to the fact that 59% of Apple's revenue is foreign.
There has been a raising concern regarding Apple’s biggest supplier. Foxconn is facing pressure to increase the wages of its employees.Foxconn Technology Group is a Taiwanese multinational electronics contract manufacturing company headquartered in Tucheng, New Taipei, Taiwan. It is the world's largest electronics manufacturer ,and the third-largest information technology company by revenue. Foxconn has been involved in several controversies relating to how it manages employees in China. There has been a history of suicides at its factories blamed on working conditions. This has created external pressure for Foxconn to change; if so it will raise its prices and affect the industry and Apple’s costs.
Competitors Microsoft-Medium 4
Close competitor since the consumer electronic took off, not considered as much of a threat as in the past to Apple anymore; This is due to microsoft expanding their operations to enterprise solutions, gaming and commercial software publishing. Microsoft is a close competitor to Apple mainly due to their competing operating systems. Microsoft has been winning in terms of market share in the operating system of computers, but heavily losing in the smartphone one. Although the internet has been experiencing extreme growth and is expected to continue growing, more
4 Threat level for upcoming 2 years: high, medium, low
consumers are becoming less reliant on computers. Mature markets with high internet infrastructure such as South Korea and Japan have already made the move to highly mobile systems. In response Microsoft has released the Surface Pro, which is competing directly with the new iPad Pro. These devices are intended to replace laptops. Overall these factors combined with Microsoft being a mature company poses a medium threat to Apple.
Google-High
Google started as a simple search engine and escalated into one of the most innovative companies in the world. Today Alphabet is competing against Apple in close to every operating segment including smartphone OS, smartphone hardware, tablet OS, laptop and services. They have been battling out for smartphone market shares, recently Tim Cook announced that 30% of android users switched to the new iPhone. Furthermore, an issue for google is that it does not have access to the Chinese market; due to not wanting censorship on its products. Nevertheless, as soon as google manages to enter China this will pose a very high threat to Apple as China constitutes 25% of Apple’s revenue and is expected to increase. An additional threat from Alphabet is its innovation; In such industry innovation is what drives profits. Overall Google poses substantial threat to Apple especially in services . 5
Samsung-Medium
The South Korean giant, has been Apple’s main competitors ever since the release of the Samsung smartphones. It has been heavily backed by the South korean government due to its important role in the country’s economy. Samsung Electronics Co. announced that net profit for the second quarter fell 8% compared to last year. as sales of the Galaxy S6 smartphone fell short of expectations. The decline was the fifth straight year-over-year profit drop, as low-cost rivals from China and India continued to weigh on Samsung's market share and profit margins, particularly for mid range smartphone models . Fortunately for Samsung its revenues made from 6
selling memory chips, application processors and display panels to other businesses help cushion the blow. In response, Samsung is trying to differentiate itself by developing its own operating system for its smartphones.Currently, Apple is the only company that design both its hardware and software. Supposing that Samsung succeeds at introducing a non android operating system on its smartphone, could lead to Apple losing market share. Overall for the next year Samsung is expected to lose market share until they find a solution to differentiate itself from low cost rivals. This poses a medium threat to Apple’s revenue forecast for 2016
5 Services include internet services, iCloud, AppleCare, ApplePlay 6 MarketWatch,. 'Samsung Profit Down As Smartphone Sales Disappoint'. N.p., 2015. Web. 23 Nov. 2015.
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Segmented Operations Americas The home segment of Apple has been experiencing an annual growth of 9.85%. It represents 40% of net revenue. Europe Europe, represents 22% of Apple’s net revenue. In the past 5 years the European market has been growing at 8.65% annually. China The Chinese market has been responding tremendously to Apple’s products in recent years. According to CNN, the social pressure of having an Apple product is strong, especially as the wealthy elites set trends . China has been 7
experiencing the highest annual growth in the company. It has been experiencing 38.65% annual growth, Which represents 25% of Apple’s revenue. Tim Cook, CEO of Apple Inc believes China will become the number one market for the company. Japan Another interesting region is Japan. a highly competitive region for the iPhone due to Samsung and other competitors having huge market shares. Nevertheless, Apple has been growing at a rate of 13.32% annually and Japan represents 7% of total revenues. Rest of Asia Pacific Lastly, this segment has been growing 10.91% annually. This is in line with the normal growth of the company. It represents 6% of revenues.
iPhone iPhone is the major source of revenue for Apple. It has been growing at a CAGR of 25.36%. According to Tim Cook, this is due to the fact that many smartphone users have made the switch from Android devices to the iPhone . Furthermore, heading towards the 8
next quarters Apple’s iPhone revenue is expected to continue growing due to Apple expecting iPhone 5s users to upgrade to the latest iPhone. Additionally, Chinese new year is a big spending season for China. Tim Cook is expecting the Chinese consumer to purchase the new iPhone models . With an increase in 9
demand for the Company’s entry-priced iPhones and the addition of a significant new carrier in the second quarter 2014 justifies the high growth from china. Overall consumers have been very receptive to the new bigger screen iPhones and the iPhone contributes 66.34% to Apple’s total revenue.
7 Jeongwen Chiang, Special to CNN. 'Why China Loves Apple - CNN.Com'. CNN. N.p., 2015. Web. 20 Nov. 2015. 8 Crothers,. 'Apple's Cook Says Android Users Bolting To Iphone - Really? | Fox News'. Fox News. N.p., 2015. Web. 20 Nov. 2015. 9 Bloomberg.com,. 'Apple’S Chinese New Year Sales May Bring A Second Holiday Boost'. N.p., 2015. Web. 20 Nov. 2015.
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iPad The iPad is facing difficulties finding growth. It has declined by 23% in the 2015 compared to 2014 and is declining at a CAGR of -9.12%. 10
Factors contributing to this decline include a lack of innovative products, iPhone cannibalism and lack of competition. Lack of innovative products results in less incentives for consumers to upgrade their device to the latest one. As the iPhone is becoming more sophisticated it is becoming harder to find use for iPads, due to the iPhone being able to execute the same functions. Apple’s iPad constitutes 25% of tablet market . Unlike the 11
iPhone, this results in Apple receiving no competitive pressure to change. iPad represents 9.94% of Apple’s revenue. Mac Mac has been experiencing slow growth, growing only at a CAGR of 3.13%. This slow growth is mainly attributed to a strong US dollar that made it more expensive to overseas customers to purchase Mac products. Yet, it is still much better than the PC industry which declined 7% this quarter . This segment 12
represents 10.90% of Apple’s revenues.
Services Revenue made from services is growing at a CAGR of 15.59%. Services includes revenue from the iTunes Store, App Store, Mac App Store, iBooks Store, Apple Music, AppleCare, Apple Pay, licensing and other services. According to management discussions this growth is primarily due to growth in net sales from Internet Services, AppleCare and licensing. Growth in internet services are expected to growth, as the internet is growing at a massive rate. According to Internet World Statistic, internet usage is growing at 45% annually and cloud computing software at 20% 13
year over year . This represents 8.52% of Apple’s 14
revenues Other Products 4.31% of Apple revenues come from other products that includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories. Apple Watch is the latest attempt from Apple to try to penetrate a new market. Unfortunately it has not succeeded and revenue for this segment is declining at a CAGR of 1%.
10 Compounded annual growth rate between 2012-2015 11 Taylor, FindTheBest. '5 Reasons People Aren't Buying Tablets Anymore'. TIME.com. N.p., 2014. Web. 20 Nov. 2015. 12 Dormehl, Luke. 'Mac Sales Are Slowing Down, But Don't Blame Apple'. Cult of Mac. N.p., 2015. Web. 20 Nov. 2015. 13 Internetworldstats.com,. 'Internet Growth Statistics - The Global Village Online'. N.p., 2015. Web. 21 Nov. 2015. 14 Forbes.com,. 'Forbes Welcome'. N.p., 2015. Web. 21 Nov. 2015.
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Comparables The first step taken in order to set the target price for Apple’s stock was to calculate the growth in Cash Flows from Operations (CFOs) for 2016. Based on the historical rate of growth, a cumulative average of the moving averages was calculated and amounted to 58.93%. However, we also calculate the growth using the cumulative average of cash flow from operation as a percentage of sales which was amounted 26.9%. Using a similar method, the rate of growth in Capital Expenditures (CAPEX) was found to be 4.29%.
Apple is a large firm that is currently growing at a phenomenal rate of 28% mostly due to its sales of the iPhone 6 & 6plus, the weakness of other currencies compared to the U.S. dollar and the release of the iPhone on time in the Chinese market. In the management discussion Apple is expecting a growth of 2.55% in the first quarter. Furthermore the percentage that all quarters contribute to the total sales on average was 30%, 25%, 22%, and 23% for the 1st, 2nd, 3rd and 4th quarters respectively. With this information we were able to forecast the growth of the 2nd, 3rd and 4th quarters as 5%, 6%, and 13% respectively, which gave us a 9% growth in revenue for 2016.
In 2016, we expect a growth of 9% in revenue which equals 255 billion in revenue. We took this value and used it to calculate the cash flow from operation for 2016.
(255B * the growth in CFO 26.9%) = 68.7B
We then used the revenue to calculate the 4.26% growth in capital expenditure which will give us 10.9 billion in capex. This will give us a Free Cash Flow of 57.75B.
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Pessimistic
Looking at the growth in revenue for the upcoming year (2016), we focused on the possibility of an increase of 6% in sales. In the second, third and fourth quarters of 2013 to 2014 their revenue grew by 5%, 6% and 12% respectively. Their own forecast for the first quarter of 2016 is an increase of 2.55%. Judging by this forecast, the second, third and fourth quarters should see the same increase as those in 2013 to 2014. Although the new iPad came out this month, we do not believe that it will sell well enough to increase those percentage significantly. In this paper we did not focus on using the growth from 2014 to 2015 because it was inflated due to the acquisition of Beats , and Apple has not discussed whether they are looking to acquire a company that would 15
make a similar impact.
Optimistic
We believe that the growth will be 19.38%. Due to the release of the iPhone 6s on September 23rd, we expect to see an increase of 25% in iPhone sales. Similarly, we expect to see growth of 12% due to the release of the iPad Pro. We expect a decrease in the sales of the Mac by 4% as a result of product cannibalism. We anticipate an increase in the revenue generated from other products due to the release of the Apple TV on october 26, 2015. New features will put Apple ahead of its competitors. The revenue of the apple watch and services will grow by 8.75%. Last month Apple released new accessories in order to make the Apple Watch more attracting . The ability to accessorize the Apple Watch will be conducive to this growth.
In order to address both the optimistic and pessimistic point of view we ran a sensitivity analysis that also includes the 9% growth in revenue that we use to get the target price. the two variable in the sensitivity analysis are capex as % of sales against the growth in revenue, as you can when the capex % of sales is 4.29% and the growth of 9% the target price is $157.44 which is our target price. when the growth in revenue hits 6% and the capex hits 4.29% the target price shifts to $153.11.
15 Apple.com,. 'Apple (Canada) - Apple Press Info - Apple To Acquire Beats Music & Beats Electronics'. N.p., 2015. Web. 21 Nov. 2015.
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Appendix II
Buyer Power
The global consumer electronics retail market is characterized by huge volumes of small buyers, end-users or consumers. As the impact on a retailer of losing any particular customer is nominal, buyer power is correspondingly weakened. This is more pronounced in developing economies, where lower incomes may price many buyers out of the market. It is difficult for retailers in this market to differentiate themselves. Except perhaps for high-end 'boutique' electronics specialists, or the retail outlets operated by manufacturers like Samsung and Apple, most retailers sell quite often exactly the same products made by the major electronics manufacturers. Complement this with the price sensitivity of consumers, especially for 'big ticket' items like televisions, and the lack of significant switching costs, and buyer power starts to look stronger. However, one way a retailer can defend itself against this is by focusing on customer service. A strong company's performance is usually linked to low employee turnover rates. More experienced employees are likely to have greater knowledge of the products on sale and therefore can advise customers better. Overall, buyer power is moderate
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Power of Suppliers
Major retailers often buy stock directly from manufacturers such as LG and Samsung. These are large multinationals, with considerable bargaining strength. Consumer electronics manufacturing benefits from scale economies, and so it is likely that there will always be a preponderance of large manufacturers upstream of the retailers. Retailers rarely integrate backwards into manufacturing, but some manufacturers run high street retail chains to sell their own products exclusively. However, it is unlikely that manufacturers would ever extend themselves so far into direct-to consumer business that the pure retailers become unimportant for their sales. Consumer electronics is a fairly commoditized market. Even an innovative product such as the original Apple iPod soon stimulates manufacturers into producing similar items. Also, where a manufacturer has valuable intellectual property, it can choose to generate revenue through licensing agreements rather than defending exclusivity in order to charge high prices. For example, Blu-ray player manufacturers must pay a royalty (in the way of a few $) to the Blu-ray format patent holders for each player they make. From the perspective of retailers, this will tend to weaken supplier power, as it means that no one supplier monopolizes a particular product category. Overall, supplier power is moderate.
Threat of Substitutes
Substitutes for consumer electronics, defined restrictively here as audio and video devices, include the broader range of ITC categories. For example, convergent devices offering audio and video functions alongside computing and communication functions, such as tablet computers and smartphones, are a substitute for dedicated devices. For photographic equipment, the threat of substitution is largely from smartphones, which have been eating away at camera sales for some time. The smartphone provides functional cameras and copious other functionalities, including internet access to upload photos instantly making it a much more enticing prospect for the casual consumer. Photographic equipment will, however, remain the choice for professional photographers or enthusiasts. Overall, there is a strong threat from alternatives.
Degree of Rivalry
The global electronics retail market has several large chain players coexisting with small independents. It is relatively easy for a company to step up its sales volume in response to market conditions; it can order more stock from a variety of providers and hire more staff rather easily. Global sporting events like the 2014 FIFA World Cup Brazil can also lead to a surge in demand for large screen televisions which in turn, increases the level of competition amongst retailers. Companies will advertise aggressively using global events such as these in order to ensure consumers spend their cash with them. This in turn increases the degree of rivalry due to companies becoming increasingly more competitive with the occurrence of seasonal events. It is difficult for a retailer to differentiate itself from the competition and switching costs are minimal. One such way it could distinguish itself is post sale services, such as extending the product's
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warranty. "Black Friday" is a sales event that originated in the US but has begun to take root in other developed countries. Retailers will slash prices on a variety of goods including consumer electronics in the run-up to Christmas. As a result, it is easy for customers to move from one retailer to another and this boosts the intensity of rivalry. Additionally, this market is fairly easy to exit given the fixed costs are in retail space, which also eases competitive pressures. Specialist photographic equipment retailers will see much more fierce rivalry as the product becomes a niche for enthusiasts and professionals, ratcheting up rivalry. The market's decline will further exacerbate the competitive environment. Overall, the degree of rivalry is strong
Threat of New Entrants
Barriers to entry to the global consumer electronics retail market are strong. Although in developed economies, where the high street tends to be dominated by a few large retail chains, it is still possible for independent consumer electronics retailers to survive. Entry on a small scale is however possible without the need for vast amounts of capital, complex regulatory compliance, or the acquisition of intellectual property. In developing economies, retail infrastructure is still fragmented and some multinational corporations have had a torrid time attempting to exploit the market; Dixons Carphone pulled out of Turkey for example. As such, entry may be more possible on a local level. New entrants must also be aware when entering markets with volatile exchange rates; many consumer electronics will have to be imported, so a volatile exchange rate constitutes another barrier to entry. Consumers have few switching costs to tie them to existing retailers. Retail markets tend to be labor-intensive, but the skill sets required for many customer-facing staff are not hard to find. On the other hand, competing directly with leading incumbents, such as Best Buy in the US, would require larger resources, in order to develop infrastructure in terms of retail distribution and branding. Large incumbents will tend to benefit from extremely large economies of scale, pushing their per-unit costs down, making them difficult to beat on price. Complementing this, central administrative costs may not rise as quickly as revenue as the number or size of stores increases, and the cost of implementing an e-retail website may be easier for a large company to absorb. All in all, there is a strong risk of new entrants, but this will be more significant in rapidly-expanding segments than in more sluggish ones. This may come via product innovations such as smart TVs or new gadgets in the photographic equipment segment. Overall, the industry is unattractive due to new entrants being able to easily enter. high level of competitions and the amount substitutes. Certain products like smartphones can do everything and eventually all other products will become irrelevant and merge into one. innovation, differentiation and customer loyalty is how Apple addresses the unattractiveness of the industry and this is why the consumer electronic industry is attractive for Apple.
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Appendix III For the EBITDA projection of FY2016, we based the forecast on a 1-year, 3-year and 5-year
smoothing average growth. Considering the rapid rise of the smartphone market in recent years
and the iPhone contributing a large portion in Apple's revenue, we only use the data of the last five
years. Apple’s 1-year average growth is 38.19%, the 3-year average growth is 44.85% and the
5-year average growth is 38.19%. We then calculated the mean of these three growth rates, which
equals 40.41%. This value is higher than the industry’s outlook, but we remain optimistic about
this growth. First, this year Apple managed to released its new iPhone in Greater China on time for
the first time. Compared to previous years, this will greatly encourage the Chinese market to
purchase the new Apple products. Facts have proved that Apple sold 3 million new iPhone
devices in Greater China in the first week. We estimate that sales will continue to grow in the
future. Second, Apple and Cisco will collaborate to improve the performance of Apple products
and making Apple’s products more user friendly. It will reduce the costs and could raise the sales
of Apple’s products in the future due to having higher performance than its competitors. Third,
Apple bought Beats Music and Beats Electronics this year. In viewing the outstanding
performance of Beats in the market for the past years, we believe that it can bring more benefits
for Apple in the future. In summary, we are optimistic and forecast that Apple will sustain the high
growth rate in EBITDA of 40.41% for FY2016. Using this estimation for FY2016 gives us:
EBITDA 2016 = $84505M×(1+40.41%) = $118651.33M
Using our forecast for EBITDA of FY2016, we calculate our target price, as followed:
