Apple in China - Going to be a big deal
This is one of the most critical questions which will swing the value of Apple’s (AAPL) stock in the next year. Could it lead to a $547 stock price in 2012? Here’s what we know so far. Last quarter, their first of the fiscal year, they did $2.6 billion in China revenues. That was 4x what they did in the same quarter a year ago.
So they are going at a $10 billion annual revenue run rate in China (although it will likely be much higher at the end of this calendar year). What we don’t know is how that revenue was generated for Apple. How much of that was online versus through their four Chinese stores versus third-parties like carriers and resellers?
I suspect that a small percentage of this was from online. Apple only launched its Chinese online store in late October. Online also still appears to be far less popular as a buying option compared to physical stores when you compare China to the US.
It is likely that Apple sold many iPhone 4s through the carrier China Unicom (CHU) and they are just getting started selling through resellers in China like Cybermart (owned by Apple manufacturer Foxconn). However, I suspect the majority of sales came from just the four Apple-owned stores.
If that’s true, it would be astounding: four stores accounting for at least $1.3 billion in sales in the quarter. That would mean each store is on a $1.3 billion annual revenue run rate. A couple of years ago, across its Western stores, Apple was averaging $30 million per year per store in revenues.
With only four stores in Asia and the Chinese gaga for Apple, you would think the company would be building more stores and they are. The company plans to boost the total to 25, with new stores scheduled to open later this year in Shanghai and Hong Kong. 50% of $2.6 billion is $1.3 billion or $325 million per store per quarter. That means the planned 25 stores could be selling $32 billion a year. And we haven’t counted third-party, carrier and online sales.
Remember that Apple’s revenues in 2010 were $76 billion. Recently, Forrester CEO, George Colony, thought they could grow 50% in 2011 to $114 billion and 50% again in 2012 to $171 billion. With just the existing planned China stores described above and 30% growth in their rest of world business from last year, it is indeed very possible that Apple can do $117 billion in 2011. If you think 30% sounds aggressive, remember that Apple has grown its revenue 50% and 33% in the last 2 years.
And, remember, Cybermart – the third party vendor in China has only 34 outlets today in Tier 2 and 3 cities. Cybermart has committed to building out 500 stores (over an unspecified time period) and they are giving Apple special selling locations within them.
In 2010, Apple did $65 billion in revenue (through end of September 2010) for the year and $14 billion in net income. Assume the same margin on $114 billion and you get to $24.5 billion in net income for this calendar year (2011). Assuming the same trailing 20x P/E which Apple has now, and Apple’s stock price by the end of January 2012 will likely be $547/share. China’s growth will be a major factor in Apple’s share price a year from now.
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