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April 8, 2019
CONCLUSION
PRICE: US$197.00
Apple's share of smartphone ownership was up slightly in the Piper Jaffray Taking Stock
TARGET: US$201.00
With Teens survey. Of ~8,000 respondents, 83% have an iPhone, the highest percentage 15x CY20E EPS of $13.39
we have seen in our survey. The iPhone may have room to move higher, however, with
86% of teens anticipating their next phone to be an iPhone, tied for the highest ever in our Michael J. Olson
Sr Research Analyst, Piper Jaffray & Co.
survey (flat from Fall-18). Android was the runner up with 9%, down from 10% in the fall.
612 303-6419, michael.j.olson@pjc.com
The Apple Watch was the top smartwatch among teens, garnering 20% share, with the
Yung Kim
Samsung Gear next on the list at 2%. 22% of teens plan to purchase an Apple Watch in Research Analyst, Piper Jaffray & Co.
the next six months, down slightly from 23% in the fall. Overall, we view the survey data as 212 284-9312, yung.r.kim@pjc.com
a sign that Apple's place as the dominant device brand among teens remains well intact.
Changes Previous Current
Reiterate OW & $201 PT.
Rating — Overweight
Price Tgt — US$201.00
• iPhone Maintains Strong Lead Among Teens. Teen ownership of the iPhone was up FY19E Rev (mil) — US$252,968
slightly at 83%, the highest share we have seen in our semi-annual Taking Stock With FY20E Rev (mil) — US$264,032
Teens survey of about 8,000 high school students. Apple's share was up slightly from FY19E EPS — US$11.78
82% in the fall. We believe iPhone may have further room to grow with 86% of teens FY20E EPS — US$13.05
anticipating their next phone purchase to be an iPhone, still our highest recorded iPhone 52-Week High / Low US$233.47 / US$142.00
purchase intent and flat from 86% in the fall. Android was the runner up in purchase Shares Out (mil) 4,773.0
intent with 9% (down from 10% and the third consecutive decline we have recorded). Market Cap. (mil) US$940,281.0
Avg Daily Vol (000) 30,417
Book Value/Share US$25.00
• Apple Watch Remains Top Smartwatch; Interest Slightly Down. The Apple Watch
Net Cash Per Share US$27.30
remained the #1 smartwatch among teens. While 73% of respondents do not own a smart
Debt to Total Capital 44.1%
watch (down from 79% in the fall), 20% own an Apple Watch, up significantly from 16%. Div (ann) US$2.92
The Samsung Gear was the runner up with 2% (flat). Purchase intent declined slightly, Yield 1.48%
with 22% of teens saying they plan on buying an Apple Watch in the next 6 months vs. Fiscal Year End Sep
23% in our Fall-18 survey. Price Performance - 1 Year
USD
240
• Services Focus Will Be Ongoing Theme for AAPL in FY19. FY19 will likely prove to
be a year with limited catalysts for Apple on the product side, so we expect the news 220
flow for the next several quarters will continue to be centered around potential for driving 200
increasing services revenue per user/device. With lengthening hardware upgrade rates 180
and uncertainty around new device uptake, Apple is increasingly looking to leverage its
160
~1.4B installed base of active devices through services. Based on the deceleration in
growth of services revenue per active device that is implied in our model and the plethora 140
of new services coming from the company, we believe Apple has the potential to show 120
Apr-18 Jun-18 Aug-18 Oct -18 Dec-18 Feb-19 Apr-19
services revenue upside in FY19.
Source: Bloomberg
R I S K S TO A C H I E V E M E N T O F P T & R E C O M M E N D AT I O N
Trends in end-markets; component pricing; competitive pressures.
C O M PA N Y D E S C R I P T I O N
Apple is the leader in the mobile device and digital content distribution markets.
Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only
a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information,
including an attestation under Regulation Analyst certification, found on pages 7 - 8 of this report or at the following site:
http://www.piperjaffray.com/researchdisclosures .
Apple, Inc. Page 1 of 8
C O M PA N Y N O T E
April 8, 2019
Details on Apple from our PJC Teen Survey - Device Ownership Spring-15 Fall-15 Spring-16 Fall-16 Spring-17 Fall-17 Spring-18 Fall-18 Spring-19
Own an iPhone 66% 67% 69% 74% 76% 78% 82% 82% 83%
Spring-19 Teen Survey Expect next phone to be:
iPhone 72% 74% 75% 79% 81% 82% 84% 86% 86%
Android 21% 19% 19% 17% 13% 13% 11% 10% 9%
Blackberry 1% 1% 1% 1% 1% 0% 0% 0% 1%
Other smartphone 4% 4% 3% 2% 2% 1% 1% 1% 1%
Non-smartphone 2% 2% 3% 2% 1% 1% 1% 0% 1%
Other Android 0% 0% 0% 0% 2% 2% 1% 1% 1%
Google Pixel 0% 0% 0% 0% 1% 1% 1% 1% 1%
• We divide our survey into two distinct income groups: upper-income with household incomes
approximating $100,000 and average-income with household incomes approximating $55,000
based on zip code analysis and census data.
• Respondents from the South composed the largest segment at 45%, followed by the Midwest
with 20%, West at 19% and Northeast at 16%.
% of Sales:
Gross Margin 38.5% 38.4% 38.3% 38.3% 38.3% 38.3% 38.0% 37.6% 39.1% 38.8% 38.3% 38.6% 38.9% 38.9% 38.8% 38.8% 38.5%
R&D 5.1% 3.9% 5.5% 6.9% 6.0% 5.4% 4.6% 6.4% 6.8% 6.0% 5.8% 4.6% 6.5% 6.9% 6.1% 5.9% 5.8%
SG&A 6.7% 4.8% 6.8% 7.7% 6.7% 6.3% 5.7% 8.3% 7.6% 6.7% 6.9% 5.7% 8.4% 7.7% 6.8% 7.0% 6.9%
Operating Margin 26.8% 29.8% 26.0% 23.7% 25.6% 26.7% 27.7% 22.9% 24.7% 26.1% 25.6% 28.3% 24.0% 24.3% 25.9% 25.9% 25.8%
Tax Rate 24.6% 25.8% 14.5% 13.3% 14.0% 18.3% 16.5% 17.0% 17.0% 17.0% 16.8% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0%
Yr/Yr growth:
Net Sales 6.3% 12.7% 15.6% 17.3% 19.6% 15.9% -4.5% -5.2% -3.6% -5.6% -4.8% 3.6% 5.2% 5.5% 3.8% 4.4% 6.2%
Operating Income 4.4% 11.8% 10.1% 17.5% 18.0% 13.8% -11.6% -15.9% -2.4% -3.8% -9.1% 4.6% 9.8% 3.7% 2.9% 5.1% 5.5%
Net income 5.8% 12.2% 25.3% 32.1% 31.8% 23.1% -0.5% -18.4% -6.6% -7.2% -7.4% 4.0% 9.8% 3.7% 2.9% 4.8% 5.5%
GAAP EPS 10.8% 15.9% 30.1% 40.4% 41.0% 29.3% 7.5% -12.2% -1.0% -1.9% -1.1% 9.7% 15.9% 9.5% 8.8% 10.8% 11.8%
Current disclosure information for this company is located at: http://www.piperjaffray.com/researchdisclosures
Source: Piper Jaffray estimates and Company Filings
Long-Term Marketable Securities 194,714 207,944 179,286 172,773 170,799 170,799 158,608 150,678 143,144 135,987 135,987 129,187 122,728 116,591 110,762 110,762 90,216
PP&E, net 33,783 33,679 35,077 38,117 41,304 41,304 39,597 42,597 45,597 48,597 48,597 51,597 54,597 57,597 60,597 60,597 60,597
Goodwill 5,717 5,889 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Acquired Intangible Assets 2,298 2,149 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Other Non-Current Assets 10,162 13,323 23,086 22,546 22,283 22,283 34,686 34,686 34,686 34,686 34,686 34,686 34,686 34,686 34,686 34,686 34,686
Total Assets 375,319 406,794 367,502 349,197 365,725 365,725 373,719 356,445 351,156 365,552 365,552 378,566 371,979 368,926 386,088 386,088 404,954
Current Liabilities
Accounts Payable 49,049 62,985 34,311 38,489 55,888 55,888 44,293 40,576 41,063 53,426 53,426 52,392 42,676 43,315 55,441 55,441 58,465
Accrued Expenses 25,744 26,281 26,756 25,184 33,327 33,327 36,703 37,070 37,441 37,815 37,815 38,193 38,575 38,961 39,351 39,351 40,948
Deferred Revenue 7,548 8,044 7,775 7,403 5,966 5,966 5,546 5,823 6,114 6,420 6,420 6,741 7,078 7,432 7,804 7,804 9,486
Commercial Paper 11,977 11,980 11,980 11,974 11,964 11,964 11,969 11,969 11,969 11,969 11,969 11,969 11,969 11,969 11,969 11,969 11,969
Current Portion LT debt 6,496 6,498 8,498 5,498 8,784 8,784 9,772 9,772 9,772 9,772 9,772 9,772 9,772 9,772 9,772 9,772 9,772
Total Current Liabilities 100,814 115,788 89,320 88,548 115,929 115,929 108,283 105,211 106,359 119,402 119,402 119,068 110,071 111,449 124,336 124,336 130,640
Total Liab & SH Equity 375,319 406,794 367,502 349,197 365,725 365,725 373,719 356,445 351,156 365,552 365,552 378,566 371,979 368,926 386,088 386,088 404,954
Key Ratios:
DSO 23 20 23 32 18 20 23 32 18 20 23 32
Inventory Turns 49.2 19.7 22.1 39.2 41.9 19.7 22.1 39.2 41.9 19.7 22.1 39.2
AP/Sales 0.3 0.4 0.5 0.5 0.4 0.7 0.8 0.9 0.6 0.7 0.8 0.9
Book Val/Shr 27 25 23 22 25 22 21 22 25 26 25 26
Cash/Shr 31.54 28.68 26.21 25.29 27.30 23.92 22.74 24.12 27.04 25.57 24.81 26.97
LTD/Cap 42.6 44.4 45.8 46.7 44.1 47.3 48.9 48.5 45.4 44.8 45.8 44.9
Source: Piper Jaffray estimates and Company Filings
Net increase (decrease) in cash and cash equiv. (195.5) 7,202.0 17,568.0 (13,088.0) (6,058.0) 5,624.0 18,858.0 (9,696.2) 538.0 12,091.5 21,791.3 18,502.4 (1,818.0) 1,213.3 13,624.2 31,522.0 36,671.6
Cash and cash equivalents at beginning of period 20,484.0 20,289.0 27,491.0 45,059.0 31,971.0 20,289.0 25,913.0 44,771.0 35,074.8 35,612.8 25,913.0 47,704.3 66,206.7 64,388.8 65,602.1 47,704.3 79,226.3
Cash and cash equivalents at end of period 20,288.5 27,491.0 45,059.0 31,971.0 25,913.0 25,913.0 44,771.0 35,074.8 35,612.8 47,704.3 47,704.3 66,206.7 64,388.8 65,602.1 79,226.3 79,226.3 115,897.9
Source: Piper Jaffray estimates and Company Filings
Product Revenue $199,254.0 $79,164.0 $51,287.0 $43,095.0 $52,301.0 $225,847.0 $73,435.0 $46,638.9 $39,633.5 $46,855.5 $206,562.9 $74,379.3 $47,670.3 $40,577.1 $47,343.4 $209,970.1 $218,424.8
% of Sales 87% 90% 84% 81% 83% 85% 87% 80% 77% 79% 82% 85% 78% 75% 77% 80% 78%
Y/Y Rev Growth 4% 11% 12% 13% 19% 13% -7% -9% -8% -10% -9% 1% 2% 2% 1% 2% 4%
Product Revenue Gross Margin -- 36.1% 33.7% 34.3% 32% 33% 33% 33% 35% 33% 32% 32% 33% 32%
Product Gross Profit -- $25,188.21 $15,017.7 $13,039.4 $15,509.2 $68,754.5 $25,809.60 $15,731.2 $12,903.5 $15,339.3 $69,783.6 $70,685.6
Services Revenue $29,980.0 $9,129.0 $9,850.0 $10,170.0 $10,599.0 $39,748.0 $10,875.0 $11,327.5 $11,695.5 $12,506.8 $46,404.8 $12,941.3 $13,295.7 $13,566.8 $14,257.8 $54,061.5 $61,919.6
% of Sales 13% 10% 16% 19% 17% 15% 13% 20% 23% 21% 18% 15% 22% 25% 23% 20% 22%
Y/Y Rev Growth 23% 27% 40% 40% 25% 33% 19% 15% 15% 18% 17% 19% 17% 16% 14% 16% 15%
Services Revenue Gross Margin -- 58.3% 61.1% 62.8% 60% 60% 60% 61% 61% 60% 60% 60% 60% 60%
Services Gross Profit $6,829.5 $6,796.5 $7,017.3 $7,504.1 $28,147.4 $7,894.2 $7,977.4 $8,140.1 $8,554.7 $32,566.3 $37,151.8
Total Revenue $229,234.0 $88,293.0 $61,137.0 $53,265.0 $62,900.0 $265,595.0 $84,310.0 $57,966.4 $51,329.0 $59,362.4 $252,967.8 $87,320.5 $60,965.9 $54,143.9 $61,601.2 $264,031.5 $280,344.4
Y/Y Rev Growth 6.3% 12.7% 15.6% 17.3% 19.6% 15.9% -4.5% -5.2% -3.6% -5.6% -4.8% 3.6% 5.2% 5.5% 3.8% 4.4% 6.2%
Active Installed Base (million) 1,220 1,270 1,300 1,325 1,355 1,355 1,400 1,417 1,444 1,477 1,477 1,512 1,530 1,545 1,595 1,595 1,707
Y/Y Installed Base Growth 14% 13% 13% 12% 11% 11% 10% 9% 9% 9% 9% 8% 8% 7% 8% 8% 7%
Annual (TTM) Services Rev Per Active $24.6 $25.1 $26.7 $28.4 $29.3 $29.3 $29.6 $30.3 $30.8 $31.4 $31.4 $32.1 $33.0 $33.9 $33.9 $33.9 $36.3
Y/Y Services Rev/Device Growth 8% 11% 16% 21% 19% 19% 18% 13% 8% 7% 7% 8% 9% 10% 8% 8% 7%
Source: Piper Jaffray estimates and Company Filings
Rating and Price Target History for: Apple, Inc. (AAPL) as of 04-05-2019
04/26/16 07/26/16 10/25/16 12/16/16 05/03/17 08/02/17 09/22/17 10/31/17 05/02/18 08/01/18 09/07/18 12/13/18 01/03/19 03/25/19
OW:$153 OW:$151 OW:$155 T:OW:$155 OW:$158 OW:$190 OW:$196 OW:$200 OW:$214 OW:$218 OW:$250 OW:$222 OW:$187 OW:$201
240
220
200
180
160
140
120
100
80
Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2
Notes: The boxes on the Rating and Price Target History chart above indicate the date of the fundamental Equity Research Note, the rating and the price
target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the
first Note written during the past three years.
Legend:
I: Initiating Coverage
R: Resuming Coverage
T: Transferring Coverage
D: Discontinuing Coverage
S: Suspending Coverage
OW: Overweight
N: Neutral
UW: Underweight
NA: Not Available
UR: Under Review
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [OW] 419 65.47 112 26.73
HOLD [N] 210 32.81 19 9.05
SELL [UW] 11 1.72 0 0.00
Note: Distribution of Ratings/IB Services shows the number of companies currently covered by fundamental equity research in each rating category from
which Piper Jaffray and its affiliates received compensation for investment banking services within the past 12 months. FINRA rules require disclosure
of which ratings most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell,
but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and Underweight
with sell. See Stock Rating definitions below.
Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.
Research Disclosures
Piper Jaffray was making a market in the securities of Apple, Inc. at the time this research report was published. Piper Jaffray will buy and sell Apple,
Inc. securities on a principal basis.
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Rating Definitions
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Stock performance is measured relative to the group of stocks covered by each analyst. Lists of the stocks covered by each are available at
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Overweight (OW): Anticipated to outperform relative to the median of the group of stocks covered by the analyst.
Neutral (N): Anticipated to perform in line relative to the median of the group of stocks covered by the analyst.
Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst.