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Number Crunch: Apple and Nvidia

Nvidia posts big earnings.
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“Apple Inc. is halving the commission it charges smaller developers that sell software through its App Store, a partial concession in its battle with critics over how it wields power in its digital ecosystem,” WSJ writes.

Starting next year, Apple will “collect 15% rather than 30% of App Store sales from companies that generate no more than $1 million in revenue through” the App Store.

  • The fee will remain 30% for bigger developers, which has been at the center of a tense conflict between Apple and Epic Games, as well as broader “government examinations in the U.S. and Europe of Apple’s competitive behavior as a gatekeeper between software makers and the hundreds of millions of people who use Apple’s gadgets.”

Numbers To Consider:

  • Apple’s platform supports more than 1.5 billion devices globally.
  • In 2019, the App Store ecosystem generated $519 billion in worldwide commerce, 85% of which went to third parties.
  • Apple’s services unit, which comprises the App Store, earned $53.77 billion in revenue during its latest fiscal year.
  • Only 0.2% of the 1.8 million apps on the platform generated more than $1 million last year, which was roughly 92% of the App Store’s revenue.

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“Graphics-chip maker Nvidia Corp. is seeing no immediate letup in pandemic-era demand in home computing, video gaming and the use of its chips in big data centers, projecting this quarter to top the record sales it just posted,” WSJ writes.

Over the last decade, Nvidia has transformed from a niche graphics-processing chips provider into a significant player in artificial intelligence and data science.

  • But it’s not as if the company has forgotten its roots either. Nvidia’s chips help power the Nintendo Switch gaming console, which sold almost seven million units in the third quarter, according to Nintendo.

Numbers To Consider:

  • Nvidia posted fiscal third-quarter sales of $4.73 billion, a 57% improvement year-over-year. Data center sales were $1.9 billion for the quarter, doubling its year-ago mark and its gaming division sales improved 36% to $2.27 billion. It’s also anticipating $4.8 billion in sales this quarter.
  • The chip maker’s shares have more than doubled this year, surpassing Intel as the most valuable U.S. semiconductor company with a $332 billion market capitalization.

Nvidia is also working on expanding its reach further with a “proposed $40 billion acquisition of U.K.-based chip designer Arm Holdings.”

Justin Oh:

This is an interesting preemptive move by Apple ($AAPL). It not only alleviates the growing dissatisfaction by developers (and let’s not forget that developers bring all the value to the App Store), but it also alleviates antitrust concerns by the government. 

But it also continues to prove my point that Apple is no longer an innovative growth compounder and is instead a sticky cash cow defending its moat. $AAPL trades at 20.5x analyst-estimated forward EBITDA, yet is not expected to grow more than in the mid single digits. $AAPL has been a pass for us on the ROIC community Big Board for a while and we continue to find better opportunities.

Nvidia ($NVDA) is an amazing company with growth potential, yet at 27x forward Gross Profit and 37x forward EBITDA, the stock is entirely too expensive to own.

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