Apple has more Cash than MSFT, 55% of Net Profits

by October 25, 2008      

apple - microsoft

In Apple's latest quarterly results, the company showed that it had 24.5 billion in cash and short term marketable securities, 10% more than Microsoft's 20.7 Billion stash. Also, Apple reported adjusted net profit of $2.44 Billion, versus $4.37 Billion for Microsoft. Adjusting for iPhone sales which are amortized according to GAAP accounting, "true" net profit is probably north of 3.5 Billion, almost three quarters of MSFT's net.

Apple's stock also appears very undervalued to us in and of itself and relative to Microsoft. At current price levels (94 for AAPL, 20 for MSFT), AAPL is valued at 85 Billion, while MSFT still has a 200 Billion dollar cap. This is even more remarkable considering that AAPL has grown its earnings from 2 Billion in 2006 to 3.5 Billion in 2007 to 4.6Billion for the trailing 4 quarters. Next year, its conceivable that Apple could earn almost the same as Microsoft (15-20 Billion), 10 Billion. Apple is certain to roll out new products, including a new release of iPhone.

So here we have it, a company with 25 Billion in cash, growing at over 50% annually, priced at something on the order of 8 times next years earnings!

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  • Non GAAP

    Huh, no no no. Apple reported net quarterly profit of $1.14 billion and $2.44 billion of “Adjusted Net Income.”

    http://www.apple.com/pr/library/2008/10/21results.html

  • Fred Krueger

    Good catch. I thought that the 2.44 number was unadjusted. Either way, we are looking at 8 times next years earnings -- an absolute steal

  • http://www.slidetoplay.com Steve Palley

    time to cash out my 401(k)s and reinvest, methinks.

  • http://polydipsia.com commander flatus

    Certainly I would agree that AAPL seems undervalued, but be very careful about the price to future earnings number. While the multiple seems very reasonable, future earnings are going to slow down with the tanking of our economy.

    Flatulently,

  • Fred Krueger

    The market is definitely pricing in a slowing of earnings. But, backing out the 25 Billion of Cash, the enterprise value of Apple is now 55 Billion. The company just earned effectively, 2.4 Billion in the last quarter. Lets be very conservative and think that we only do 5 Billion next year. You are still talking a pretty low multiple for a phenomenal company.

    Now, lets consider the possible upside. The cell phone market overall is at least 1 Billion handsets. I think Apple has proved it can dominate the smart phone segment of that market, but its also really good at the mass market (iPod nano). Its quite concievable that Apple takes a big slice of that overall handset maket in the years to come, stealing share from Nokia and others even in a severe recession.

    It also has less to fear from Google. Android is out, and quite frankly it looks horrific. I think Google has been exposed as a one trick pony, and that Android is the new Zune.