Apple Stock Analysis and Comparative Overview Apple’s Quarterly Report: Navigating Highs, Lows, and Strategic Insights

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By Ronald Tech

Last week ushered in a whirlwind of earnings reports, culminating in a standout day on Feb. 1 where Apple, Meta Platforms, and Amazon all revealed their financial performance. Notably, Meta Platforms and Amazon rocketed to high points, while Apple faltered, positioning itself as the second-worst-performing stock among the “Magnificent Seven.” In summary, Meta soared by an impressive 20.5% while Amazon gained 8%, and Apple experienced a slump with a 3.4% loss.

While the numbers might paint a grim picture, I, contrary to conventional wisdom, am leaning towards Apple as the more attractive investment option right now. Allow me to elucidate why I firmly believe that the tech giant still holds significant prospects for long-term growth.

A person sitting at a desk coding on two laptops and a monitor.

Image source: Getty Images.

A Record Quarter: Navigating Through Imperfections

For its fiscal first quarter of 2024 (ended Dec. 31, 2023), Apple reported all-time-high diluted earnings per share of $2.18, marking a 16% increase from the previous year. While product revenue experienced modest growth of less than 0.1%, services revenue saw an 11.3% rise, leading to a total sales increase of 2.1%. Nonetheless, Apple attributed 2 percentage points of lower revenue to product supply constraints and one less operating week compared to the same period in the prior year. Yet, a 4% revenue growth hardly makes a compelling case.

Net Sales by Region

Q1 fiscal 2023

Q1 fiscal 2024

Year-Over-Year Change

Americas

$49.3 billion

$50.4 billion

2.3%

Europe

$27.7 billion

$30.4 billion

9.8%

Greater China

$23.9 billion

$20.8 billion

(12.9%)

Japan

$6.8 billion

$7.8 billion

14.9%

Rest of Asia Pacific

$9.5 billion

$10.2 billion

6.5%

Total Net Sales

$117.2 billion

$119.6 billion

2.1%

Data source: Apple. Chart by author.

Although Apple displayed robust sales across various regions, the standout blemish was China, which bore the weight of a nearly 13% drop in sales. The intriguing prospect, however, unravels when one looks beyond the surface statistics. Removing China from the equation, the fiscal Q1 2024 sales would have seen a 5.9% increase from the previous year. Factoring in the estimated additional 2 percentage points of sales hindrance due to the extra operating week in the prior year, the revenue growth would have effectively been 7.9%. This nuanced perspective paints a far more compelling picture, underscoring Apple’s resilience and potential for growth, especially in promising emerging markets.

Key Highlights of the Quarter

Apple adeptly managed costs and bolstered margins, evident in the substantial reduction of over $2.3 billion in product cost of sales, leading to an all-time high gross margin of 45.6% compared to 43% in the previous fiscal year’s first quarter. This underscores the growing potency of Apple’s services sector, transforming the company into an even more lucrative enterprise.

During the earnings call, Apple underscored its exceptional performance in services, alongside remarkable iPhone sales growth across several new markets. Moreover, the company reaffirmed its commitment to sustainability by introducing carbon-neutral Apple Watches and other initiatives aligned with its goal of achieving net-zero carbon emissions by 2030.

Crucially, Apple’s installed base of devices surged to a record high of 2.2 billion, supplemented by a historic upsurge in iPhone upgrades during the quarter. Notably, Apple currently boasts over 1 billion paid subscriptions across its services, an impressive twofold increase from four years ago.

Detractors citing Apple’s decelerating growth should acknowledge the stock’s meager 7% uptick over the past two years. Nevertheless, what goes unnoticed is that Apple has evolved into a higher-margin, higher-quality business compared to just two years ago. While growth may appear subdued, the reasons behind this slowdown are rational. Importantly, the impetus from its services arm equips Apple with substantial momentum to further enhance its margins in the years ahead.

Muted Guidance from Management

Apple forecasts a gross margin of 46% to 47% for the second quarter, along with a double-digit growth in services revenue. It is vital to note that the previous year’s second quarter benefited from alleviated supply chain constraints that inflated inventory and fulfilled pent-up demand. In essence, it was an artificially robust quarter. Apple acknowledges that this tailwind accounted for around $5 billion in additional revenue in the same quarter last year.

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Consequently, the company anticipates similar iPhone and total company revenue for the upcoming quarter compared to the prior year, but sans this fortuitous windfall. Essentially, Apple is signaling an expected Q2 revenue of $89.8 billion, down from $94.8 billion in the equivalent period a year ago.

The Fortitude of Apple’s Capital Return Strategy

Apple’s buyback program amounted to a substantial $20.1 billion, exceeding the $19.5 billion in the first quarter of fiscal 2023. Simultaneously, the company disbursed $3.8 billion in dividends, marginally surpassing the figure from a year ago. Astonishingly, Apple’s buyback program dwarfs its dividend program by over fivefold.

For context, if Apple allocated the funds earmarked for buybacks to dividends, it would have paid out $1.26 per share in dividends this quarter, translating to a promising forward yield of 2.8%. This exercise reveals the sheer magnitude of Apple’s capital return program, emphasizing that a holistic assessment should consider the context of buybacks alongside dividends.

Through this lens, it is evident that buybacks represent a superior capital deployment avenue than dividends. The act of repurchasing shares in a high-caliber company serves as a prudent use of capital, particularly when the stock price ascends. Additionally, it yields immediate benefits by curbing the outstanding share count and, consequently, bolstering earnings per share.



Apple’s Strategic Investment Move

Apple’s Strategic Stock Buyback: A Deft Move or a Shortsighted Maneuver?

Amidst fiscal challenges, Apple reigns as a leader in the world of tech titans. Recently, the company strategically announced a massive stock buyback, aiming to funnel a definitive chunk of its mammoth cash pile toward shareholders. Apple’s move, while outwardly surgical, has sparked intense debate amongst investors regarding the effervescent motivations behind the buyback and its long-term implications.

Boosting Earnings-Per-Share Growth

Apple’s penchant for share repurchases functions as an effective tailwind for its earnings-per-share growth, especially in instances where the intrinsic uptick in organic growth appears to wane. By reducing the number of outstanding shares in the market, the company artfully inflates the EPS metric, effectively enhancing shareholder value. It’s akin to the age-old concept of amassing a deliciously buttery croissant dough – fold, roll, repeat – the end result is a delectable, multi-layered pastry., guaranteed to entice.

A Viable Long-Term Investment

Apple’s quarterly performance and guidance may have been lackluster, prompting short-term investors to stampede for the exits. However, the buyback strategy has galvanized the company’s long-term investment thesis, bolstering its attractiveness and signaling a salient proposition for potential investors.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber harbors no position in any of the stocks mentioned. Notably, The Motley Fool maintains positions in and recommends Amazon, Apple, Meta Platforms, and Tesla. Moreover, The Motley Fool meticulously adheres to a disclosure policy.