I hope all of you had a relaxing, memorable Memorial Day!
Today's interview is with one of the most famous independent analysts in the world. Robert Paul Leitao, the blogger and founder of Posts at Eventide, and the founder of the Braeburn Group, an organization of the finest independent Apple analysts there are. Robert is really a genius when it comes to Apple and I had a great time interviewing him.
Q. Why do you follow Apple?
A. I became interested in Apple upon the release of the original Macintosh in 1984. The Mac represented a radical departure from established industry norms in terms of the graphic user interface and the way in which it "invited" each user to apply his or her own creativity in concert with the emerging personal computer paradigm. The Mac was clearly designed from the vantage point of fitting the needs and desires of the user and not from the vantage point of making the user fit a contrived product design. I purchased my first Macintosh in 1986 and since that purchase I have used Macs exclusively at home and in my work as a writer and independent analyst. The desires of the product user are inherent in all of Apple's product designs. I continue to follow Apple because in my view it is the most innovative consumer product and personal technology enterprise on the planet and represents an equity class all its own.
Q. Out of all the independent analysts that you know, which do you respect the most and why?
A. I respect the work of Horace Dediu, Turley Muller, Daniel Tello and Andy Zaky. They were among the first independent analysts to publish quarterly estimates for Apple and engage readers in ongoing discussions about the company. I began publishing my own estimates because I was and remain unsatisfied by the coverage of Apple in the financial press and to share the outcome of my work with the public. I was inspired by the work being performed by Horace, Turley, Daniel and Andy and appreciate their encouragement over the years. I have a lot of respect for my fellow members of the Braeburn Group including Mark Beauch, Dennis Hildebrand and Patrick Smellie. Many of us have been active in the public discussions about Apple for quite some time. I'm also impressed by the research work of Scott Millar, one of the newest members of the Braeburn Group.
Q. You seem to be more on the finance side of things, what respect do you have, if any, for the design side and how it affects the finance side?
A. The design side of Apple delivers the company's strong financial results. Apple is about innovation and innovation and smart design are at the center of the company's relationship with its customers. One of the axioms I developed about Apple is as follows: "Apple doesn't sell products. Apple creates customer relationships and these customer relationships sell Apple products." To understand Apple, the company's past success and prospects for success in the future, one must look beyond the number of units sold and evaluate the company from the viewpoint of yield per customer. Apple technology enhances the user's ability to be productive and the products work intuitively with the way each unique user approaches problem solving, information gathering and interpersonal communication. The products are designed with the user in mind. Absent continued innovation Apple will not continue to find success. In the March quarter, nearly $.30 of each recognized revenue dollar flowed to the net income line. Apple's revenue growth and earnings growth are fueled by design and innovation. Although Apple has mastered supply chain management and operational efficiency (operating expenses consistently represent less than 10% of recognized revenue), it's innovation that excites customers and innovation that delivers the company's strong rates of growth. Innovation captures the imagination and imagination cements the bond between the company and its customers. Each new Apple product and product refresh is an expansion of Apple's ongoing "conversation" with the company's customers.
Q. How/why/when was the Braeburn Group founded?
A. The first "Braeburn Group" was an informal discussion group I started a few years back to facilitate discussions with Horace, Turley, Andy and me. I've always like the Braeburn name. The Braeburn apple is a hybrid cultivar with a unique and complex flavor. In my view it's analogous to the complexities involved in developing quarterly estimates for Apple. Although today's Braeburn Group includes a much larger number of independent analysts, each member brings to the Group a unique outlook and an individual approach to the development of quarterly estimates and revenue and earnings growth models. The new Braeburn Group is a private group and each membership request is carefully reviewed to be sure a prospective member's interests match with the mission and goals of the Group. Our membership is comprised of independent analysts, readers who closely follow our work and professionals with an interest in the industries and market sectors we cover. Although I've been publishing quarterly estimates and share price forecasts for a number of years, I've been actively involved in the public discussions about Apple for a much longer period of time. For about a decade I actively moderated the Apple Finance Board. The AFB is a popular and publicly available discussion forum. What I learned through many years of leading discussions in a highly trafficked and publicly available forum is there's a need for a private space for independent analysts to share insights and information. This is not an effort to be secretive, but to provide a place for independent analysts to explore ideas, concepts and theories that are not ready for publication. In my case I invest a great deal of time researching Apple and the company's product markets. Often my research leads to new insights. But often times my research arrives at a dead-end. I don't like to make available to the public unfinished work or work that isn't supported by quality data and analysis. Although members of the Braeburn Group engage in lively and informative discussions inside the Group's online environment, each member analyst is responsible for their own methods and analysis. I'm excited by the ways in which Braeburn Group members are enhancing the public discussions about Apple and bringing new approaches to research to the table.
Q. If for one day, you were Tim Cook, what would be the one thing you would buy, and what would be the one thing you would change?
A. I've listened to Tim Cook on Apple's conference calls with analysts for a number of years. His understanding of Apple is remarkable and his passion for the company and its continued success is emphatic and beyond question.I have great respect for Tim Cook's abilities, his appreciation for the highly talented people Apple employs and his dedication to delivering the best products possible to Apple's global nation of product users. Apple has a history of purchasing technology and talent, not necessarily products. It's talent and technology that deliver constantly innovative and sometimes revolutionary products. I would not change Apple's acquisition strategy. In March, Apple announced a $10 billion, three-year share buyback program that will commence next fiscal year. If there's one thing I would change is the timing and the size of the planned share buyback program. Apple is currently generating cash at the rate of about $1 billion per week and as of the end of March the company had over $110 billion in cash and marketable securities on the books and no long-term debt. The planned resumption of a quarterly dividend program and the share buyback program can both be amply financed from operations without diminishing the size of the cash assets already on the books. If I were Apple's CEO for a day I would encourage the company's board to consider increasing the share buyback amount and accelerating the start date of the share repurchases. At today's closing price of $565.32, Apple is selling at a bargain relative to the more than $115 in cash behind each outstanding share and the company's 12-month eps growth rate of 95%. Investing shareholder assets in a larger share buyback program, considering all long-term and short-term capital commitments can be amply financed with the cash assets already on hand and through continuing cash contributions from net income, would be a sound investment and a means to further support the share price. I'm bullish on Apple and will soon be revising my current 12-month price target of $790 per share.
I wanted to incorporate Apple as much as possible in Robert's wallpaper. If you like it enough...buy it here.
P.S. If you read the t-shirt post a couple of days ago, I just wanted to say that if anyone needs a t-shirt designer I would love to help out!