Yesterday, Carl Icahn posted an open letter to Tim Cook on his tumblr feed:
Sale: Apple Shares At Half Price
It’s also fiction.
But it’s still glorious.
Allow me to paraphrase:
For the sake of politeness, I’m going to say that you’re fab (in fact, if the rumour mills are correct, your fabulousness is a given). But you’re doing it wrong.
I want you to buy back more shares.
And here is a forecast for those other lesser-minded investors that might want some justification:
- Despite the global slowdown, I predict GROWTH in EARNINGS of 44% next year!
- Yes – that’s FORTY FOUR PERCENT! PER SHARE!
- Don’t worry about the fact that your earnings declined between 2012 and 2013 – that’s all history now.
- And what’s more, FORGET that PE ratio of 8 times earnings, or the S&P average PE ratio of 15 times earnings – let’s use a PE ratio of 19 times earnings!
- Because I’m CARL ICAHN, and these are just NUMBERS, and I have a legal person that can write me a DISCLAIMER AT THE END!
- Let me tell you how I got to the 44%:
- iPhone 6 is AMAZEBALLS!
- ALL the Samsung Galaxy wannabes will be flocking on board.
- Because iPhones are Mercedes Benzes and Galaxies are Volkswagens.
- So iPhone sales will be up 30%. Because NUMBERS!
- Also – the iPad will no longer have declining sales in 2015!
- Because I believe the rumours about a giant A4 sized iPad!
- So I predict iPad sales growth of 13%!
- I also predict BIG THINGS for the Apple Watch!
- I think you’ll sell at least 20 million of them next year. Then 45 million the following. And 72.5 million in the year after that!
- AND I think that you’ll sell them for $450 apiece instead of the $350 price tag that you mentioned in your presentation. Because accessories, amirite?!
- And I think that going into UltraHD television is a great idea for Apple, so I’ve included $18 billion of Apple TV set sales for 2016, and $37.5 billion for 2017!! Because why the hell not?
- And I LOVE Apple Pay!
- I think that you’ll have 30% of the US credit and debit card transaction market by 2017! Because these are all just NUMBERS!
- And I haven’t even considered the monetisation of Homekit and Healthkit (because I don’t know what your plan is – and I tried to invent one like I did with the TVs – but then I ran out of time)!
- And look, spreadsheets!
So you see, obviously, Apple shares are cheap.
Buy some today.
And if you do, I solemnly swear not to sell any of my shares for a bit.
*insert some self-plugging about earning investment returns of 36.5% annually since 2010 in order to prove expertise*
PS: in the notes, I mentioned that I’ve used a tax rate of 20% instead of the 26% that you use. I know I know – it has multiplier effects that are far larger than 6% – but I’m Carl Icahn. Booyah.
All that? Far too optimistic. I mean – he invented Apple products for goodness sake, and then included them in his forecast.
To say nothing of the baseless expansion rates.
Also, while we’re at it:
- Increasing the Earnings Growth Rate; and
- Increasing the PE ratio
- Is a bit of double counting.
- PE ratios are an approximation of earnings growth rates (higher PE ratios are associated with high growth companies – lower PE ratios with more value companies).
- To increase the earnings AND increase the PE ratio is a naughty slight of hand.
At the same time, perhaps I’m reading this wrong, but as of this morning:
And quite specifically:
Which does not look at all like a PE ratio of 8…
Obviously, Carl Icahn can’t really believe that Tim Cook would be persuaded by bad math, fantastical predictions, and what appears to be a blatant misrepresentation of fact.
The clear consensus is that the real paraphrasing of the aforementioned letter is as follows:
Tim Apple Investors
Don’t be idiots after this iPhone launch.
I know you like to flee from Apple the minute that there’s a hint of a supply glitch, or a forecast of lower sales, or whatever.
But that is just you being stupid.
And because you’re stupid, I wrote this letter full of crazy pronouncements and predictions, wrapped up in long paragraphs of flowery phrasing.
If you’re stupid, you’ll believe them. And maybe it’ll stop you from romping off at the first sniff of bad news.
If you’re not stupid, then you’ll see this letter for exactly what it is. But I was never that worried about your lot anyway.
Also, I get a kick out of making headlines. And it’s been a while since Herbalife – and I’ve basically had my way with eBay. So it was time.
Oh – and Tim? I really do want some share buybacks.
Get on it.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
Yoyo (@yoyo_w) October 10, 2014 at 08:58
RE: PE 8x, its adjusted for net cash. Many analysts adjust for this with large tech, mostly to reiterate that tech is not in a bubble.Reply
Jayson October 10, 2014 at 09:44
Haha – of course! Apologies – this was rather flippantly mouthed off this morning. In fact, if you look back at my Apple posts from when the share price was floating around $390 ($58 after share split), I spent most of that time being incredulous about the PE ratio after taking into account excess cash. Fail on that front. But thanks for pointing it out!Reply
Anonymous October 10, 2014 at 16:41
Great read – on a somewhat unrelated note, I read this other article on Apple and the new iPhone:
Anonymous October 13, 2014 at 08:22
Jayson October 13, 2014 at 08:34