Apple Continues Record Results Trend
The recent sell-off that we’ve seen in the market due to rising rates in the U.S. bond market has hit tech stocks extraordinarily hard. To a certain extent, this makes sense. As rates go higher, we should see adjustments to the risk premiums that investors are willing to place on equities.
This means multiple contractions across the equity space, and especially amongst those stocks trading with the highest and most speculative valuations. However, when pouring through Nobias’s data and reading analysis that our 5-star contributors are publishing recently, it appears as though the market is beginning to throw the proverbial babies out with the bath water.
A perfect example of this is Apple (AAPL). Of the 5-star analysts that Nobias’s algorithm tracks, just 28.2% currently have a bearish outlook on the stock. Yet, as of today’s $120.13/share, Apple shares are down more than 17% from the all-time highs that they set in late January.
Apple’s most recent quarter included a top and bottom-line beat, several records when it came to sales figures and user engagement metrics, and more than $30 billion in shareholder returns. Yes, you read that right...in just one quarter, Apple returned more cash to its shareholders than the vast majority of the companies in the S&P 500 produce in sales during an entire year. And, Mathew Fox of MSN believes that Apple’s generous trend is likely to continue.
In a recent article, Fox put a spotlight on Apple’s cash hoard, which totaled $196 billion at the end of its most recent quarter. Fox also touched upon the company’s recent $14 billion bond offering, which he believes the company will use to enrich shareholders further. “According to Bloomberg,” Fox says, “Apple's massive pile of cash on hand and $14 billion bond offering suggest the pace of shareholder returns from the company will likely rise to new highs this year.”
Regarding those record results, back on January 27th, Apple’s CEO, Tim Cook began the company’s fiscal first quarter conference call by saying, “We achieved an all-time revenue record of $111.4 billion. We saw strong double-digit growth across every product category, and we achieved all-time revenue records in each of our geographic segments.” Apple’s CFO, Luca Maestri, later continued to list records, highlighting all-time records from the company’s product and service segments, which posted year-over-year growth rates of 21% and 24%, respectively.
The top-line records resulted in bottom-line records as well. The $28.8 billion in net income (which was up 29% y/y) and the $38.8 billion of operational cash flows (which was up 26.7% y/y) were both all-time records for the company as well.
Iphone sales of $65.6 billion was an all-time record. Worldwide, Apple’s iPhone installed base is now above 1 billion active phones, which is a new record. Apple’s high margin service segment produced $15.8 billion in sales, which too, was an all-time record.
Apple’s total number of paid subscriptions continues to rise as well, making all-time highs each quarter recently as numbers increase on a sequential basis. The company had more than 620 million total paid subscriptions under its service category at the end of Q1, which was up more than 140 million (or 29.1%) compared to the same quarter one year ago.
Overall, Apple’s $111.4 billion revenue figure represented growth of 21%, year over year. Frankly, it’s astounding that the world’s largest company is able to continue to take market share and grow at such a strong, double digit clip.
For years, Apple bears have noted that the “Law of Large Numbers” would eventually result in this company’s growth stalling out. Well, Tim Cook and Co. have certainly debunked that thesis during the recent quarterly results. And, analysts widely believe that this trend is set to continue, with the current consensus estimate for Apple’s fiscal 2021 earnings-per-share growth rate to come in at 34%.
Yet, Apple isn’t immune to failure. For instance, Paul Ausick at 24/7 Wall Street, recently highlighted his belief that Apple, which was the world’s leader in the podcast distribution market in 2015, is likely to lose its crown to Spotify in 2021.
However, even if Spotify’s podcast listeners cross up above Apple’s current market leading position, it’s important to note that combined, the two companies will have a 48% market share, which still denotes a strong, defensible position for the company. What’s more, while it may be true that Apple is losing out to smaller, more nimbler competitors in certain areas of its business, the company continues to fire on all cylinders in the areas of the market with the highest annual sales potential.
Trevor Jennewine, of The Motley Fool, recently highlighted the company’s firm bucking of the “Law of Large Numbers” trend, stating that “Two years after becoming the first publicly traded $1 trillion company, Apple became the world's first $2 trillion company in August 2020.” He mentioned that at the end of 2020, Apple had more than 1.65 billion devices in use, globally. And, while this implies that the company may be approaching the edge of its addressable market share, in terms of hardware sales, bear who focus on this idea overlook the stickiness of Apple’s ecosystem, which means big revenues from company’s product refresh cycles, and more importantly, the company’s 2018 shift towards a more software oriented focus, which better monetizes its global installed base.
“Last year, Apple's services revenue was $53.8 billion, accounting for about 20% of total sales,” Jennewine notes. He goes on to highlight the recent heavy investments that the company has made into its services segment, highlighting the recent success of Apple Pay Apple Arcade, and Apple TV, and says, “In other words, as services account for a bigger portion of total sales, Apple should become increasingly profitable.”
Regarding Apple’s refresh cycle in 2021, Harsh Chauhan of The Motley Fool recently published a report titled, “3 Hot Stocks to Buy in a 2021 Market Crash” which calls for the record iPhone sales trend that we saw play out in the first quarter to continue throughout the entire year. Chauhan notes that famed Apple Analyst, Dan Ives of Wedbush Securities, “predicts that Apple could ship a record 250 million iPhones in 2021 -- surpassing the 231 million units it shipped in 2015 -- driven by the intense demand for the iPhone 12 models.” Chauhan says that “Ives' projection is based on the estimate that there are 350 million iPhones in an upgrade window, and the 5G-enabled offerings from Apple will kick off a massive upgrade cycle as consumers will want to make the jump to the new, much-faster, wireless standard.”
In a separate article which Chauhan published, titled “Why Apple Will be the Undisputed King of 5G Smartphones in 2021” he noted that Apple pulled ahead of rival Samsung, in terms of 5G phone shipments, during the recent quarter and he expects that gap to widen throughout the rest of this year. Chauhan says, “Third-party research predicts that Apple could command 35% of the 5G smartphone market in 2021.”
And, due to the massive potential of the global 5G transition, we’re not surprised to see Apple focus its energy on this trend, as opposed to smaller, less impactful ones, like market share in the podcast distribution space. Simply put, for Apple to continue to post strong growth with a $2.1 trillion+ market cap, the company is going to have to dedicate most of its energy towards mega-trends that can really move its financial needle.
This is why it appears that Apple is getting serious about entering into the automotive business.
Few industries can rival the global sales volume of the mobile phone space, yet with roughly 70 million cars sold on an annual basis during the last 5 years, the automotive segment could be the next industry that is ripe for disruption as the shift to driverless vehicles begins to play out over the coming decade.
Shanthi Rexaline, a Benziga staff writer with a 5-star rating at Nobias, says that after months of rumors floating around financial circles about Apple’s Apple Car ambitions, “It now appears the rumors could have some merit.” She cited a recent Bloomberg report which says that “Cupertino is in active discussions with several suppliers to procure the lidar technology that is used in self-driving vehicles.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
The Bloomberg report continued, saying that people familiar with the matter say that “After working on the Apple Car project for several years, Apple has now developed most of the necessary software, underlying processors and artificial intelligence algorithms that are needed.”
Rexaline highlights the importance of the driverless/electric vehicle market, saying, “EVs are considered the future in mobility, and this has prompted even traditional automakers to plunge headlong into these green energy vehicles.” She continues, saying that it comes as no surprise that the “Apple Car project is picking up steam after being in the works for several years now. Apple's products are known for their disruptive potential. Additionally, the company's design focus could make its EV offering an exciting one, despite it being late to the party.”
Disclosure: Nicholas Ward is long Apple. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.