Goldman Sachs’ Rod Hall issues Apple mea culpa

From Hall’s “What would make us more positive?”, a note to clients that landed on my desktop Tuesday:

We downgraded Apple to a Sell rating on April 16, 2020 based on a big picture view that Apple is going ex-growth and a micro view that COVID-19 is likely to drive disappointing 2021 results. So far it would be an understatement to say that this call hasn’t worked, with Apple up 71% since our downgrade.

Our big picture view of Apple is grounded in the idea that the iPhone is a very tough act to follow, with Services and Wearables not likely to be large enough to return the company to growth. We also note that Apple’s Services narrative is nearly a decade old, with iCloud launching in 2011, and yet Services have not been able to drive consistent growth…

In this report, we highlight both Microsoft and Amazon as examples of companies that are delivering the numbers and yet are valued at about the same multiple as Apple.

We want to emphasize that we are not permanent bears on Apple. However, we also believe investors should follow the numbers and, in our opinion, these aren’t consistent with the narrative that has driven the stock to its highest premium vs. the S&P 500 since 2011, when iPhone penetration was accelerating.

Maintains Sell rating, raises price target to $80 from $78.50.

My take: Let’s follow one of Hall’s numbers. Amazon’s PE as I write this is 125.2 and Apple’s is 35.7. If Apple were valued at “about the same multiple” as Amazon its stock, by my calculations, would be selling for more that $400 a split-adjusted share.

See also: Rod Hall does it again.

UPDATE: Rod Hall responds:

Apple trades on a similar PEG to AMZN and MSFT – its actually a touch higher. That would be clear to you if you had read the report.

Hall introduces the price/earnings-to-growth ratio (PEG) is on page 13 of his report. Here’s that section:

Another way to look at this discrepancy is to compare PEG ratios for these same stocks. Here we see that Apple is trading on a premium to all other FAAMG stocks. If we were to use our own EPS forecasts, Apple’s PEG would be a much higher 6x while the other companies’ PEGS would remain similar.

apple goldman sachs rod hall mea culpa


  1. David Emery said:
    My take-away: From your extracts, Hall has NOT LAID DOWN A COHERENT ARGUMENT. If for no other reason than the MSFT P/E and AMZN P/E are NOWHERE NEAR the same. So trying to extrapolate from those two disparate values don’t make sense…

    One wonders, too, what values he wants to see for his “growth” calculation.

    Or, to put this more succinctly, “this looks like bovine effluent to me.”

    September 9, 2020
  2. Fred Stein said:
    He can’t see the forest for the trees because he keeps banging his head against the ‘iPhone tree’.

    The forest is the A-series / iOS ecosystem soon to add AirTags and Macs, and already including the world’s best chip foundry, 23 million developers, and a billion loyal customers.

    I’m just stating the obvious. Feel sorry for Rod, really.

    September 9, 2020
  3. Alan Levy said:
    How is the growth in services not consistent? The added number subscribers each quarter has almost been TOO consistent! (See ASYMCO/ Dediu for details).

    September 9, 2020
  4. Thomas Larkin said:
    Clown, crook, or something else? Garbage research, garbage analysis, garbage conclusions. Uncannily timed to help fuel selling in AAPL during a larger downturn? Anyone else see a pattern, or do I need to take off the tinfoil hat?

    September 9, 2020
  5. Romeo A Esparrago Jr said:
    Taking slightly from Mr. Phil Schiller:
    “Mea Culpa my a$$!”

    September 9, 2020
  6. Gregg Thurman said:
    There are at least a dozen ways to value a company. My favorite is Discounted Cash Flow. Using DCF the most valuable of the four examples is Apple.

    Share count as a dilutor is a non-issue because everybody’s holdings increased by a factor of 4, AND Apple is engaged in a multi-year stock buyback program while the others are not.

    Growth is nice, and Apple is growing like startup, so growth is a non-issue as well.

    Hall confuses iCloud as a driver of Services, ignoring completely music and video streaming (Spotify and Netflix multiples should be a strong influencer of value).

    Bottom line is that Hall has been a dork remains a dork and will always be a dork.

    September 9, 2020
    • David Drinkwater said:
      “Hall confuses iCloud as a driver of Services, ignoring completely music and video streaming (Spotify and Netflix multiples should be a strong influencer of value).”

      I agree completely. Rod Hall is missing the whole services narrative. I don’t have the numbers, but I recall that last quarter’s results highlighted this. (Well, I can remedy my ignorance easily enough in the archives…)

      ped30 /2020/07/30/apple-blowout-q3-2020-easy-charts/

      15.2% YOY growth in the July report. And apart from Q3 2018, the results have generally been greater than 10% YOY quarter after quarter.

      That sure sounds like a growth driver to me.

      I do think you’re being a little hard on dorks, though. 🙂

      September 9, 2020
  7. Ralph McDarmont said:
    Mea culpa? At a laughable $80 per share? Is anyone here who is old enough to remember watching Bozo the Clown? Rod sure has led a lot of Goldman clients off a cliff.

    September 9, 2020
    • David Emery said:
      Bozo was occasionally funny….

      September 9, 2020
  8. Bart Yee said:
    Rod and his ilk want to stuff Apple into THEIR models of what growth companies should be – relatively small, starting from little and getting to big or bigger. That’s where % changes look impressive until you see the actual change amounts are still quite small, for awhile. Everyone her experiences that with their early investing.

    When you get as big as Apple, “growth” is a relative phrase. Hall wants growth in upper teens to 20’s is my guess and struggles to understand why Apple does not buy its M&A way (like Tony Sacconaghi) to growth and how Services and Watch and wearables are just growing TOO SLOWLY to overtake iPhones or move the needle enough.

    Hall also believes still in that “law of large numbers” BS, that once you get so big, you just can get growth because meaningful jumps in percentage growth is diluted with having done so well before the compares don’t show much. THEN CHANGE THE MODEL!!!

    September 9, 2020
    • David Emery said:
      As I’ve said before, in a business that supposedly values measured performance, Hall’s inability to come anywhere near close to predicting Apple’s results or stock price, over multiple years, SHOULD require accountability.

      And given the total lack of accountability by his employer, I conclude that it’s deliberate. Blame both Hall, but more blame Goldman Sachs for not holding their employee accountable for an unique record of failure.

      September 9, 2020
    • Bart Yee said:
      Doing big M&A means committing major money, digesting company, people, management, culture, products. Huge amt of time, effort, resources, cuts, layoffs, clashes – in one word, a distraction. And many times moving away from core competencies and primary focus – See GE conglomerate, Microsoft (Nokia, LinkedIn, Skype), Google (Nest, Motorola, Dodgeball, Deja News, Waze, Fitbit, parts of HTC). Do these M&A materially feed growth or do they just add more noise to the company focus? Is it just more spaghetti on the wall?

      Apple has followed tight focused acquisitions that add to its strengths. The riskiest spending so far has been for content but it is long term. Digesting any content provider other than Disney would have been disastrous.

      September 9, 2020
      • Bart Yee said:
        As for growth numbers, as @Joseph points out, Apple does the most with its expenditures and revenues. It’s income and free cash flow are superior. It returns more of that to shareholders, and shareholders and investors value THAT now more than just analyst growth numbers. The law of large numbers also works like this – a big company with already big revenues and FCF, if they make even single digit growth, they make very large amounts more money (when everyone said they couldn’t possibly make more or “enough”). So that tends to undervalue those contributions per analysts (see PED analysts charts last 5 years). Here on PED3.0, we have been discussing this ad infinitum. Just like investor accounts when they finally hit high $$$$ major targets, 1-3% AAPL growth means more gains than we ever made working in a year.

        Hall acknowledged he has been wrong but he hasn’t acknowledged his model is wrong. It’s strictly a financial model based on old assumptions and metrics. He doesn’t place any weighting on how Apple executes, how it maintains and incrementally grows its business, revenues and income, and how well it remains focused on user experience and building customer loyalty. And he doesn’t seem to fathom why investors would be willing to pay a premium for that let alone why Apple users would pay a premium for all that Apple represents.

        September 9, 2020
  9. Dan Scropos said:
    Where’s the mea culpa? I don’t see one. I see excuses and lies. Services growth has gone from a little over $4 billion a quarter in 2014 to over $13 billion a quarter. That’s real growth. At 15% forward growth, Services revenue will slightly more than double in 5 years. Put simply, Rod Hall is lying.

    This guy is a real scumbag. To issue this note proves it. But we should “follow the numbers,” right, Rod? We DO, and that’s why we see growth ahead. 5G is a nice runway to increased revenue and profits, all while diminishing the share count. More than anything, it’s another opportunity for Apple to once again lead the world in innovation, vision and ecosystem. And I highly suspect they’ll do a better job of that than Rod Hall will with his Apple prognostications.

    September 9, 2020
  10. Jonny Tilney said:
    “iPhone is a tough act to follow”…sorry Mr Hall, I missed the part where the iPhone has somehow disappeared and has to be replaced. After so many years of iPhone progression, evolution and innovation, it seems nuts that someone, let alone a top notch bank analyst, can say this.

    September 12, 2020

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