Gordon Leong's Contributor Page

Final year student from the University of London in Singapore, graduating in 2018 with a degree in Banking and Finance with a minimum second class upper honors.
Contributor Number: 128

Gordon's Models

Last Updated: June 25, 2017
View on Apple: Bearish
Price Target: $139
Primary Model Assumptions: I have made the following assumptions in my Apple Inc Model:
  • iPhone Unit Growth Rate: The trend over the last three years shows that Apple has been facing major difficulty in maintaining high unit sales growth rates (compared to the triple digit year-over-year growth achieved with the iPhone 4). I believe that it is highly likely that the release of the new Samsung flagship will have a detrimental impact on iPhone sales, particularly since the focus on the Samsung battery issues has diminished over time. To reflect this view I have modeled iPhone unit sales up 2.5% in 2017, followed by growth of just 0.4% in 2018. 
  • iPads: My view is that iPad unit sales will improve in the December quarter driven by exclusive iOS 11 features and improving choices (color, size, capacity).
  • Macs: The focus of the company seems to have shifted away from personal computing as the latest Macbook updates were just more of the same. Hence I expect sales from the customers that wanted a mac last year but held off making the purchase until the next major update is announced. Sales are unlikely to change significantly. I am modeling decay of units sold growth through 2018.
  • Other Products: For the HomePods, the novelty of a new Apple product is likely to attract sales from loyal customers who buy everything Apple, however, the idea of a home assistant is not very prevalent, and there are already options available like Amazon Echo and Google Home, hence those who are so inclined, would have already likely purchased them. Beyond the strong Apple supporters, I expect this product is unlikely to get much attention from the market.
  • Gross Margin: I anticipate that gross margin expansion will be muted in 2018, reaching approximately 39%, as rising costs and increased competition from more affordable and attractive alternatives are brought to market.
  • Income Tax: I estimate Apple's tax rate will remain stable at 26% through 2018, despite tax reform rhetoric which is implying a lower U.S corporate tax rate as the Trump administration is too unpredictable and unlikely to get tax reform initiatives through Congress.
  • Operating Expenses: I am modeling R&D as a percentage of revenue to increase  25 basis points (bps) and 39bps in 2017 and 2018 respectively, which primarily reflects spending costs associated with advancements in Artificial Intelligence, Li-Fi, and 5G. I also expect SG&A to increase by 43bps and 57bps over the next two years, which reflects the erosion of Apple's competitive advantage and the need to maintain brand image.
Gordon Leong AAPL Model.xlsx
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