ii view: revenue record helps Apple avoid tech sell-off

Third-quarter results to 30 June

• Revenue up 5% to $85.77 billion (£67 billion)
• Adjusted earnings up 11% to $1.40 per share
• Dividend of $0.25 per share (19.5p), unchanged from Q2

Chief Executive Tim Cook commented: 

“During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad, and Mac. 

“We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers’ lives, while leading with the values that drive our work.”

• Invest with ii: Buy US Stocks from UK | Most-traded US Stocks | Cashback Offers

ii round-up:

Tech titan Apple Inc (NASDAQ:AAPL) reported a new third-quarter revenue record, aided by a near one-quarter increase in iPad sales to $7.2 billion and following the May release of a new iPad, its first since 2022. 

Overall sales for the three months to the end of June climbed 5% year-over-year to $85.77 billion, topping Wall Street forecasts for $84.5 billion. Earnings per share also exceeded forecasts, rising 11% to $1.40 per share, although China sales dropped 7% to $14.7 billion.

Despite a wider sell-off in the tech space, shares in the Dow Jones and Nasdaq giant are in positive territory this trading session having come into this latest news up around 13% year-to-date. That’s similar to laptop and Windows software maker Microsoft Corp (NASDAQ:MSFT) and broadly matches a 14% gain for the tech-heavy Nasdaq Composite index in 2024.

Sales of Apple’s core iPhone fell 1% from the same quarter in 2023 to $39.3 billion, a fall countered by a 14% gain in Service sales such as those for Apple music and TV.  

Revenue from Mac PCs improved 2% year-over-year to $7 billion. Sales of Wearables, Home and Accessories, including the Apple watch, moved in the opposite direction, falling 2% to $8 billion. 

Geographically, sales improved for every other region outside China. Apple guidance for the current fourth quarter to late September points to hopes for similar group-wide revenue growth as seen this Q3.

Accompanying executive comments flagged Apple’s ongoing development of Apple Intelligence, an AI product its plans to make available going forward on devices from iPhones to iPads. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, repeating its estimated fair value price of $273 per share.    

Fourth-quarter results are likely early November. 

ii view:

Started in 1976, Apple devices and services today compete against offers from Samsung, Meta Platforms Inc Class A (NASDAQ:META), Microsoft, Spotify Technology SA (NYSE:SPOT), and Netflix Inc (NASDAQ:NFLX). iPhone sales remain by far its biggest category at 46% in this latest quarter, followed by Services at 28%, Wearables, Home and Accessories at 9%, and the balance of 17% split relatively evenly between iPad and Mac PC sales. 

For investors, concerns about product innovation, particularly in relation to the core iPhone, now persist. Elevated borrowing costs could be pushing some consumers towards cheaper rival options. Geopolitics and the tit for tat war between the US and China may be causing Chinese consumers to look elsewhere, particularly to domestic brands, while a forecast price/earnings (PE) ratio above the three- and 10-year averages suggests the shares are not obviously cheap.

• Doubts are starting to creep up about AI’s $600 billion bet
• What next for Nvidia stock after losing top spot?
• ii view: Netflix upgrades outlook as profits boom

To the upside, the tying in of customers using its services on their Apple devices generates high customer loyalty. Product innovation is being driven, including the development of an AI product and the recent introduction of a new 3D headset. Both product and geographic diversity exist, and there's exposure to payment services, while the dividend, although not a key attraction, has been increased consecutively for the last 10 years with the shares yielding 0.4%. 

On balance, and while falling iPhone sales are something to watch closely, the use of Apple products by so many consumers globally looks like it still justifies the stock's place in diversified 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