- Apple beats quarterly earnings forecasts yet again
- Shares slip after weak guidance for first quarter of new fiscal year
- Stock now 13% off its summer all-time high and no higher than it was in December 2021
“Apple is the latest of the so-called Magnificent Seven to report its most recent set of quarterly earnings and it looks to be joining Tesla and Alphabet on the naughty step, in contrast to Microsoft, Meta and Amazon, whose shares are rallying after their results releases,” says AJ Bell investment director Russ Mould. “With NVIDIA still to come on 21 November, that is a pretty mixed scorecard for a septet of firms with a combined market cap of $10.5 trillion, or 30% of the S&P 500, so investors will be looking to the graphics chip specialist to provide fresh impetus in three weeks’ time.
Source: Refinitiv data. Magnificent Seven constitutes the aggregate market cap of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla
“In the meantime, they will have to chew on Apple’s outlook statement for its fiscal first quarter, which is less sweet than perhaps many had hoped. Although the firm declined to give any formal guidance, chief financial officer Luca Maestri noted that sales could come in broadly flat against the October-to-December period in 2022.
“That implies sales of $117 billion. It is still a huge number, but it undershoots the consensus of 5% growth to $123 billion and implies revenues will come in below the sales figure generated in the fourth quarter of calendar 2021 of $124 billion.
“Investors are not paying a $2.6 trillion market cap for a company whose top line is not growing. They are looking for more than that. Granted, the first quarter of Apple’s new fiscal year has one less week than the same period a year ago. But analysts knew that already (or they should have done), so that is a pretty weak excuse as excuses go.
“Of greater concern than quirks in the calendar will be the pedestrian rate of iPhone sales growth and the plunge in iMac sales (which may explain why Apple rushed out a Halloween-themed launch of the M3, Pro and Max iMacs).
“The good news is that services sales are still humming, thanks to loyal and sticky customers who continue to embrace the ecosystem of apps, but even wearables sales look to be flagging, to reinforce that Apple’s top selling product is still the iPhone and that is now sixteen years old. Near-term concerns over growth in China also refuse to go away.
Source: Company accounts. Fiscal year to September
“The good news is that Apple is still growing net income and earnings per share. The mix of sales, with its higher portion from services, helps here, as does the ongoing share buyback programme, although whether investors want to pay, or should be paying, more than 25 times forward earnings for financial rather than product engineering is one they will have to ask themselves once more in light of the lukewarm outlook statement.
Source: Company accounts. Fiscal year to September
“Those buybacks – supplemented by dividends – will continue to appeal to many investors, especially those who focus on income.
“Apple bought back $21 billion in stock in the fourth quarter and paid out $3.8 billion more in dividends. Since the firm began both programmes back in 2012, it has returned $758 billion to its shareholders, compared to a market cap of $440 billion eleven years ago.
Source: Company accounts. Fiscal year to September
“Sceptics will counter that even this largesse comes with a catch, since debt, rather than free cash flow, has funded a portion of the dividend payments and buybacks. Apple’s net cash pile, at $57 billion, is down to just 2% of the market cap from the 2016 peak of more than 25% (when net cash exceeded $150 billion). This means there is less downside protection from a valuation and balance sheet perspective, should anything unexpectedly go wrong.”
