Interactive Investor

ii view: Apple sales down, profits up

Its shares tumbled 27% in 2022, but gains made this year suggest investors are optimistic about the future. We assess prospects for this iconic phone maker.

3rd November 2023 11:35

by Keith Bowman from interactive investor

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Fourth-quarter results to 30 September

  • Revenue down 1% to $89.5 billion (£73.4 billion)
  • Adjusted earnings per share up 13% to $1.46
  • Dividend unchanged from the previous quarter at $0.24 per share (19.7p)
  • Returned over $24 billion to shareholders, similar to the previous quarter

Chief Executive Tim Cook commented: 

“Apple is pleased to report a September quarter revenue record for iPhone and an all-time revenue record in Services. We now have our strongest lineup of products ever heading into the holiday season, including the iPhone 15 lineup and our first carbon neutral Apple Watch models, a major milestone in our efforts to make all Apple products carbon neutral by 2030.”

ii round-up:

US tech titan Apple Inc (NASDAQ:AAPL) has detailed sales and earnings which beat Wall Street forecasts but offered caution about consumer demand over the crucial Christmas period. 

Sales fell for a fourth consecutive quarter, retreating 1% year-over-year to $89.5 billion, although they beat estimates of around $89.3 billion. Record profit margin and 16% sales growth at its Services division, including Apple Music, helped push overall group adjusted earnings up 13% to $1.46 per share. 

Shares in the Dow Jones and Nasdaq listed company fell around 3% in afterhours US trading having come into this latest news up by just over a third year-to-date. That’s behind a near-200% gain for artificial intelligence (AI) computer chip maker NVIDIA Corp (NASDAQ:NVDA), but broadly in line with a 44% gain for Android phone software maker and Google owner Alphabet Inc Class A (NASDAQ:GOOGL). The Nasdaq Composite index itself is up by just over a quarter so far this year.

Sales gains of 3% and 16% respectively at its iPhone and Services divisions during the quarter helped counter 3%, 10% and 33% falls for Wearables, iPad and Mac computer products.   

Geographically, only sales in its Americas region rose (+1%), with everywhere else retreating, including a 2% fall for China.    

Apple offered no formal current or first quarter guidance but suggested sales may prove ‘similar’ to the $117.2 billion posted in the Christmas quarter of 2022. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on Apple shares post the results, flagging its belief that its most important categories iPhone and Services remain solid, with other more economically sensitive products such as Mac sales likely to improve once the economy does. 

ii view:

Joining the stock market in 1980, Apple is today the biggest US company by stock market value at over $2.5 trillion. Competing against devices from the likes of Microsoft Corp (NASDAQ:MSFT) and Alphabet, the California headquartered company continues to generate the largest slug of sales from its core iPhone product at just over half, followed by Services at close to a quarter. Next comes Wearables, Home, and Accessories at around a tenth, with the balance of 16% split roughly evenly between Mac PC and iPad sales. 

For investors, pressured consumer spending given increased borrowing costs on loans from houses to cars is likely to be hindering sales. The West’s relationship with China, Apple’s third largest market away from the Americas and Europe, is now more strained following the Ukraine war. An estimated future price/earnings (PE) ratio of close to 30 is comfortably above the 10-year average, suggesting the shares are not cheap, while environmental concerns and the required use of resources in making its products also warrants consideration.   

On the upside, the tying in of customers using its services on their devices generates high customer loyalty, with paid subscriptions previously reaching over one billion. The move to 5G and faster data download speeds does give reason for customers to potentially upgrade to its new iPhone 15. Investments in AI are being made, while its strength of brand and geographical diversity cannot be ignored. 

On balance, and while exposure to crimped consumer spending is likely hindering sales, this mammoth of the technology world still looks to justify its place in many diversified investor portfolios. 

Positives:

  • Diverse geographical markets
  • Strong customer loyalty

Negatives:

  • Dependency on iPhone sales
  • Strained relations between the West and China

The average rating of stock market analysts:

Buy

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