The Above Avalon Daily Update Recap (3Q21 Edition)

I publish exclusive daily updates all about Apple throughout the week. The updates contain my perspective and analysis on Apple’s business, product and financial strategy, and competitive relationships with a range of companies. The updates have become widely read and influential in the world of Apple and tech and are ideally suited to executives, investors, project managers, and hobbyists. When combined with the periodic articles and podcast episodes, which are accessible to everyone, the updates provide the full Above Avalon experience throughout the week.

During the third quarter of 2021 (July to September), 48 Above Avalon daily updates were published, chronicling both noteworthy industry and Apple-specific stories as well as my Apple research. The major themes discussed during the quarter included:

  • Developments in the App Store regulatory space (South Korea, Japan, Epic Games Vs. Apple trial).

  • Apple TV / paid video streaming industry developments. 

  • Apple unveiling its Child Sexual Abuse Material (CSAM) detection plan and the resulting fallout.

  • Project Titan leadership changes and developments in the EV space.

The Above Avalon Daily Update Recap (3Q21 Edition) goes over these major themes and the corresponding daily updates.

(To access the following updates, become a member and then request access to the daily updates archive found in Slack.)

Developments in the App Store Regulatory Space (South Korea, Japan, Epic Games Vs. Apple trial)

After years of discussion and debate regarding Apple’s handling of the App Store, there was notable movement on the App Store legal and regulatory fronts. During 3Q, Apple notched two App Store victories in U.S. courts, South Korea rushed an anti-App Store bill through, and Apple began to loosen its grip on some of the more controversial App Store guidelines.

Apple TV / Paid Video Streaming Industry Developments

The paid video streaming industry continues to intrigue as it expands and evolves. There were a number of noteworthy events and developments during 3Q including Netflix’s move into gaming, a “Ted Lasso” bonanza, and the Netflix vs. Disney dynamic. I also went over my estimate for the number of Apple TV+ subscribers.

Apple Unveiling Its Child Sexual Abuse Material (CSAM) Detection Plan and the Resulting Fallout

In August, Apple lit a firestorm of a debate by announcing a plan to combat child sexual abuse. The plan ended up drawing into question a number of philosophical questions as to Apple’s role in society and the company’s reason for being.

Project Titan leadership changes

Apple’e electric car project continued to move forward with a major leadership change as Apple Watch software chief Kevin Lynch replaced Doug Field as Titan head.

A few additional updates published between July to September stood out to me.

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The Above Avalon Daily Update Recap (January 2021)

Along with publishing periodic articles that are accessible to everyone, I publish daily updates all about Apple. These updates are 2,000-word emails that revolve around Apple business and strategy analysis, my perspective and observations on current news and Apple competitors, and comprehensive coverage of Apple earnings, product events, and keynotes. These daily updates have become widely read and influential in the tech sector and Apple universe. The updates are now also available in podcast form called Above Avalon Daily.

Since 90% to 95% of my time is dedicated to researching and writing the daily updates and recording the corresponding daily podcast, I am introducing a new Above Avalon product called The Above Avalon Daily Update Recap to make it easy for everyone to keep abreast of where my focus has been. Each curated recap of the prior month’s updates includes access to one story from a daily update that I particularly enjoyed writing in the previous month.

The daily updates are available exclusive to Above Avalon members. To sign up and for more information on membership, visit the membership page.

The following story was featured in the Above Avalon Daily Update published on January 14th, 2021 (prior to Apple reporting 1Q21 earnings).

Projections for Apple’s Buyback Pace

Apple has $79B of net cash on the balance sheet. By funding share repurchases and cash dividends, Apple has been gradually chipping away at that total (was $153B in FY17).

Based on my projections, Apple will be able to sustain the current pace of share buyback (approximately $70B per year) for an additional 11 to 13 quarters before net cash gets close to zero.

Where does my 11 to 13 quarters estimate come from?

There is a $25B delta between the amount of cash Apple is returning to shareholders each year ($90B) and annual free cash flow ($65B) - the amount of cash generation leftover after management has paid all of the bills and maintained / funded capital investments. Free cash flow is used to manage debt in addition to fund cash dividends and share repurchases. Meanwhile, Apple has $79B of net cash on the balance sheet. ($79B / $25B = 3.2 years or 13 quarters).

It is important to note that these are rough calculations. Apple’s cash needs will fluctuate year to year. This will have an impact on Apple's free cash flow. In addition, it would not be essential to know the exact moment net cash neutral is obtained, if Apple ever technically gets to that level, but rather when net cash is in the vicinity of $0.

Once Apple reaches a net cash neutral position, my estimate is Apple’s buyback pace will slow to something closer to $50B per year. This total is primarily derived from my Apple free cash flow projection ($70B per year) minus cash dividend expense ($15B per year). Over time, Apple's buyback pace can certainly increase to remain in line with free cash flow growth. The reverse is true as well - a slowdown in free cash flow may result in less buyback.

These estimates assume that Apple management continues to view share buyback as attractive at the current share price. That decision will ultimately be based on management's estimate of Apple's intrinsic value. Based on Apple's most recent buyback activity, management thinks Apple's intrinsic value is higher than $115 per share.

In January, a total of 15 daily updates containing 45 stories were published. Those 45 stories have been rearranged into the following categories:

Earnings / Financials

Product Strategy

Business Strategy

Management / Leadership

Apple Peers and Competitors

Industry Analysis

Thursday Q&A (The following questions were submitted by Above Avalon members.)

All of the following stories are accessible to members via the Daily Updates archive. Access to the archive is a benefit attached to membership. For new members, information about accessing the archive will be sent to you after going through the signup process.

The daily updates are also available via a private podcast called Above Avalon Daily. In January, 14 podcast episodes were recorded for a total of 200 minutes of audio. The daily podcast is available as an add-on that can be attached to an Above Avalon membership. More information on the podcast is available here. All prior episodes will appear in your podcast player after you sign up for the Above Avalon Daily podcast.