ii view: Covid fuels Apple sales

Double-digit sales growth & a pending stock split. Investors give it the thumbs up. 

Third-quarter results to 27 June 2020

• Revenue up 11% to $59.7 billion
• Earnings per share up 18% to $2.58
• Dividend unchanged from Q2 at $0.82 per share 

Chief executive Tim Cook commented: 

“Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments. 

“In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation.”

ii round-up:

Smartphone and tablet maker Apple (NASDAQ:AAPL) reported an 11% gain in quarterly sales to $59.7 billion, fuelled by demand for its products & services as consumers worked and schooled from home under pandemic lockdowns. 

Double-digit sales growth compared to less than 1% in the previous quarter, comfortably beat analyst estimates. So did sales.  

Apple shares rose by around 6% in after-hours US trading having risen by over 30% year-to-date. Shares for fellow streamer Netflix (NASDAQ:NFLX) are up by 50% in 2020, while Walt Disney (NYSE:DIS) shares are down by 20%, although up 35% since late March. 

iPhone and iPad sales rose by 22% and 31% respectively. Revenues for services including music increased by 15% to $13.2 billion. On a geographical basis, sales increased in every region including by 2% in Greater China. International sales accounted for 60% of total revenues.

In tandem with the results, Apple also announced a four-for-one stock split to make the shares more accessible to a broader base of investors. The split will take place in August. 

The chief financial officer said: “The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories.”

But the pandemic is expected to disrupt its pending September launch of new iPhones for a few weeks. 

ii view:

A record base of active installed devices is allowing Apple's Services business, which includes Apple music, to blossom. Services now account for around 22% of overall sales, up from 21% this time last year. The launch of its AirPods Pro and a push to diversify its product sales also appears to be showing promise.  Sales for wearable, home and accessories grew by 17% to $6.45 billion 

Now, Covid-19 is offering opportunities and difficulties. Consumer reliance on technology has increased under work from home conditions, although opportunity to test and upgrade devices at local stores was disrupted. 

For investors, concerns over what might take up the slack from a broader slowing in iPhone device sales persists. Increasing government interest in the dominant positions of tech giants is also worth remembering, including the question of where the likes of Apple pays its taxes.  But Covid-19 appears to be further underlining consumers’ need for technology, while a group cash balance of over $190 billion and the potential for added shareholder returns cannot be overlooked. 

Positives:

• Diverse geographical markets
• Over $190 billion of cash & cash equivalents held

Negatives:

• Sales of its iPhone, its key product, have fallen in past quarters
• China 2019 sales fell by 16% compared to 2018

The average rating of stock market analysts:

Buy