4/21/10 Midday Report: You can not stop AAPL, you can only hope to contain them

The news today is earnings, earnings, earnings, and Sophie Turner.  The markets are inching up after a strong slate of mostly positive earnings reports (not so fast AT&T and GILD).  However, before we get to earnings which featured Apple taking other handset makers out to eat, getting them drunk, and then giving them a cleveland steamer as a reminder of their dominance, Greece is back in the news.  Investors are worried that Greece may take 45B euros in aid before actually agreeing on the terms which is very TARP-esque of them (one wonders if they are going to use Hank Paulson's preferred contractual device of a napkin to agree to country changing policies).  With terms of the aid more open than Joslyn James' anus right before Tiger Woods "sinks a putt," the risk premium on Greek bonds has soared to 512bps which is higher than anything in Greece has gone since Icarus let his ego get the best of him.  Concerns remain that Greece may not be able to pay the 8B euro coming due in a month and in a show of support, Greek workers are about to embark on their 3rd 24 hour strike since the crisis began which would be crippling if that weren't somehow still more hours than they typically work in a day.  Luckily for them, France is gearing up to loan Greece 6B to 8B euros as part of the aid package.  French economy minister Christine Lagard, who in 2009 was named Best Finance Minister in Eurozone by the Financial Times after a stunning rendition of "Mo Money Mo Problems" in the talent portion of the show, tried to calm the fears of a Euro meltdown by opining:  "I won’t say Portugal is next in line..." before adding "but I just saw Prime Minister Jose Socrates listing the Iberian Peninsula on Craigslist for "roses." Boooyah!!!  Can I get a Quelle Quelle?"

As for earnings, AAPL crushed their quarter with iPhone sales up 130% leading to a 90% increase in profit and a 49% increase in sales.  Apple earned $3.33 per share, well above analyst guesses of $2.45 and said they were "shocked" by how well the iPad was selling.  Holy fucking shit is it on.  Apparently Apple's app for taking over the world is a little too good as their products are selling faster than Adam Smith's invisible hand can fondle unwitting young ladies during New York's Fashion Week.  In other earnings news, Morgan Stanley traded the fuck out of some shit (and Money McBags apologizes for getting overly technical there) earning $1.03 per share after one-timers largely because of their sales and trading unit.  Book value is up to ~$28 per share and ROEs are creeping back up hitting 13%.  Like every other investment bank, revenues and profits were driven by fixed income traders who bought and sold shit we'll never know about, who we can't actually track to see what the fuck they are doing, and who are likely ignoring all but one SEC regulation (and that one of course is to not get high off their own supply).  The paper economy lives on, long live made up shit.  Also, MCD beat guesses by earning $1.03 per share after one-timers and Money McBags is an owner of this stock because there is huge brand equity for continued international expansion.  Operating margins were up 2.2% and same store sales were up 4.2% for the quarter and 5.2% in March driven by 4.2% growth in the US, 5.9% growth in Europe, and 7.9% growth on Mars.  MCD is not going to be a high flyer but it offers a nice yield for a franchise that should do well in a world becoming more globalized, even in a down economy.

In other earnings, BA beat numbers, YHOO had a nice bottom line (though not nearly as nice as Jessica Biel's bottom line) yet missed on revenues since they compete with something called GOOG, and AT&T had a good Q but is selling off as new subscribers were the lowest since 2004 during the bizarre and short lived rotary phone trend.  Also, VMWare put up a huge quarter and Money McBags did something he rarely does by buying the quarter of a ridiculously high priced stock.  Honestly, Money McBags hates buying things this overvalued more than he hates long walks on the beach, sentences that end with prepositions, and Jane Austen, but he believes in virtualization.  This not a fucking fad like Wacky Wall Walkers, YoYos, or the way way too short lived rainbow parties.  Revenue was up 35% to $634MM, Non-Gaap earnings were up 45% to $.32 per share, free cash flow was up 68% to $326MM, and overall cash on the balance sheet was a healthy $2.8B.  Guidance was for 30% 2010 revenue growth of $2.6B to $2.7B which means the company is currently trading at around 9x 2010 revenues but closer to 6.5x 2011 revenues ex. cash.  Yeah, it is a total bullshit metric and Money McBags crapped all over metrics like this yesterday when he advised that SFSF was too fucking expensive, but companies like VMWare often get purchased at multiples of revenue between 6x and 10x so we're still at the low end of 2011 potential revenue multiples.  It certainly isn't cheap and on a P/E basis it is trading somewhere between astronomical and Warren Buffet heart attack high, but they are a market leader in a space that is absolutely here to stay.  IT departments are cutting costs quick and deep, like Lexington Steele losing his virginity, and VMWare's virtualization software is at the forefront of this (or, to continue with the Lexington Steele analogy, the foreskin of this).  Money McBags believes in this sector and cloud computing almost as much as Burton Malkiel believes in efficient markets or as much as aspiring Hollywood actors believe in Scientology and it is why Money McBags will soon be buying TMRK (who by the way received a big investment from VMWare last year).  So yes, the stock is pricier than an Ashley Dupre blumpkin, but sometimes you have to pay up for quality.

In small cap news, a Money McBags favorite and his largest small cap holding KITD is bouncing back after a big block trade on them yesterday afternoon which sent them stumbling.  The stock is probably range bound to down until they announce a new acquisition or until their next quarterly call in a couple of months so there is no reason to panic and if you are are not an owner, buying any dip is certainly worthwhile.  Also, CRUS which Money McBags owns and has written about many times is getting some AAPL momentum today as they produce an iPhone audio chip and as said earlier, iPhone sales were ridonkulous.