Simply put, customers do come first. Noted from a excerpt from Ms Private Equity - " new Apple owners almost find themselves surprised to own an Apple, seems a common trait among the, admittedly small, sample of Apple owners I have encountered. I've watched four or five people who swore they would never own an iPhone give in, buy them and proclaim, in such similar tones one wonders if The Amazing Alexander works for Apple now ("I loved it. It's much better than PC. I am going to buy it again, and again and again..."), that it is the best phone they have ever owned. And this is where I began to wonder, why the near epiphany in reaction? Now I think I know.
Why this reluctantly amazed reaction among iPhone buyers? Because the definition of "phone" created by hardware and network providers today is so limited. Why have so many Macintosh buyers had the same reaction? Because the conventional definition of "laptop" or "operating system" or "computer" created by hardware and software providers today is so limited. Because these companies hate consumers, hate their desires, hate their needs and, consequently, make sure that the conventional definition of, e.g., "laptop," or "phone" is very limited."
This essay merits your attention on any number of levels, irrespective of whether you are long Apple, merely bullish, or even a bear on the company. While the stock has nearly doubled over the last year, its free cash flow has more than tripled. As a result, a company that is growing at more than 20% per year on the top line is yielding 3.9% on a free cash flow to enterprise value basis.
A significant exposure is the possibility of a consumer slowdown combined with increasingly high expectations. Apple is far more consumer-driven than other tech stocks, and a 40x P/E multiple might not hold up if they only beat by a nickel instead of the quarter investors have come to expect. That’s why free cash flow is so important in this case - it provides a solid backstop, and would help justify being patient through a slowdown should it come. If the company can grow at even half the current rate over the next five years, investors are likely to be well compensated for the added risk.