Sunday, March 05, 2017 3:31:29 PM
Summary of Saber Capital Letter
Apple
Began looking in the fall of 2015 when stock dropped from around $130 to $90 in a matter of few months (massive $200 billion swing in market value)
Eventually came to a conclusion that Apple shouldn’t be analyzed as a computer hardware manufacturer, it should be thought of as a consumer brand
Consumer brands like Nike, Coca-Cola, or Starbucks all buy commodities (raw materials) and sell brands
Nike’s shoes might be nice but the material isn’t all that different than Russell’s or Champion’s
Commodity material is similar but Nike gets its 50% gross margins thanks to the brand it has built over time
Great business inside of Apple is their services business (App Store, payments, music, etc)
App Store did $28 billion in revenue last year of which Apple gets a 30% cut which is nearly pure profit (service business alone will reach somewhere around $30 billion this year)
Now over 1 billion Apple devices and this “installed base” continues to grow (over 100 million new active devices added last year alone); each device acts like miniature retail stores for Apple, collecting very high margin revenue on a recurring basis from apps, games, music, storage, and payments
Believe Apple’s brand will lead to very predictable sales and willing to bet that this will be the case 5 years from now as well (2 short years ago, was not in the watch business – they are now the second largest watch company in the world)
For less than $95, you were getting a very high quality business that was producing $9 or $10 of FCF/share and $30 per share of net cash; at a P/FCF of 7x, seemed like a no-brainer
Full summary of Saber Capital Letter: https://investoralmanac.com/2017/02/14/saber-capital-letter-2016-review-apple-verisign/
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