4 points to pay attention to when looking at Apple's financial results

As the company with the largest market capitalization in the world, Apple is always in the spotlight of market participants! Investors will not be able to overlook the release of new Apple products and their sales, and by extension, Apple's financial results. Apple announced financial results at the aftermarket on February 1.

Apple is a stable entity boasting the largest market capitalization in the US stock market. There is a possibility that the results of financial results announcements will have an impact on short-term stock prices. However, for mature companies with large market capitalization such as Apple, it is recognized that the impact on long-term trends is not that big.

Therefore, it seems good to decipher the results while paying attention to a few important points from a long-term perspective.

Long-term corporate development is underpinned by stable earnings.

First, it is necessary to clarify what the company's profit source is, and then closely monitor whether it is stable.As long as earnings stabilize, it is thought that overall performance will not easily deteriorate, so it is a supporting factor for stock prices.

Let's take a look at the sales structure. It's clear that Apple's source of revenue is undoubtedly the iPhone division.

The iPhone division accounts for more than half of total sales

The service division, which accounts for about 20% of total sales, is also derived from users and app stores

The wearables sector has also penetrated smartphone users

If market share continues to grow, this indicates that earnings are increasing. Conversely, when market share declines, it means that something is happening that may shake earnings.

You can check smartphone market share trends from business data within the app.

You can see that there is a big change in each quarter, but this is related to when the iPhone was released, and salesSeasonal changesThis is because there is.

When compared based on the quarter that is when iPhone sales are raking in, the smartphone market share increased from 19% to 23% between 2019 Q4 and 2022 Q4, and it is continuously improving.

According to data from Canalys (a research firm based in Singapore) for the fourth quarter of 2023, Apple's market share is around 24%, and it has maintained relatively stable performance. However, there is a possibility that Apple's market share will be greatly affected by the revival of Huawei's high-end smartphones and the big hit of Xiaomi's latest flagship models. Going forward, it is necessary to continue to pay attention to whether Apple can gain a foothold in market share.

The long-term competitiveness of a company is determined by how high the advantage it has. The greater your competitive advantage, the easier it is to maintain your business permanently.

Many market participants recognize Apple as one of the companies with the highest competitive advantage. It has technological superiority in semiconductors developed in-house, an iOS ecosystem with integrated software and hardware, and no factoriesFabless managementIt is something that results from.

This is because the stronger the competitive advantage, the stronger the bargaining power with customers, and the higher the gross profit margin (gross margin ratio).

The gross profit margin (gross margin ratio) of the hardware business, which represents the iPhone, has generally been hovering around 35% in recent years, and the gross profit margin (gross margin ratio) when software services with high profit margins are added is approximately 40%.

According to agency statistics, iPhones occupied 18% of the smartphone market in 2022, and obtained 85% of the industry's operating profit. To put it bluntly, it was very profitable.

For Apple, as long as the gross profit margin is maintained around 40% or higher, I think it can be said that gross profit is relatively stable. If this is not the case, it can be recognized that gross profit is declining, and there is a possibility that there will be selling pressure in terms of stock prices.

Apple's gross margin ratio has exceeded 44% over the past three quarters, maintaining a slight upward trend, and it is thought that its competitive advantage was relatively stable. We should continue to pay attention to whether Apple's latest quarterly gross margin can maintain the high level it has so far.

For Apple, if sustained earnings are a “defense,” then “aggressiveness” is growth with an eye on the future.

In the existing hardware business, the company's growth potential is relatively limited. For example, in the iPhone division, sales have remained stable over the past few years.

However, conversely, it's hard to think that iPhone sales will suddenly double in the future so that having 2 or 3 smartphones by one person is unlikely to become mainstream.

Thus, it can be said that the growth engine is mainly due to sales in the service sector.Sales in the service sector include fee revenue from app stores, advertisement revenue from Google, subscription service revenue, etc.

Over a long period of time, sales in the service sector remained above 10%, and at one point it was over 20%. The ratio of total sales has also increased from less than 10% to 20%.

However, sales growth in the service sector slowed significantly this year. There was only a slight increase of 6.4% over the same period last year in Q1, and then fell to 5.5% in Q2.

However, from the third quarter to the fourth quarter of fiscal year 2023, Apple's service business revenue growth slowed compared to the previous year, and rebounded slightly, resulting in an increase of 8.2% and 16.3%, respectively. In the upcoming latest quarter, the focus will be on whether the revenue growth rate of that service business continues to stabilize and rise slightly. If earnings continue to decline, it will put downward pressure on stock prices.

In addition to existing growth engines, future growth expectations areNew products and their growthBrought to you by For example, these include the headset “Vision Pro,” which was newly released in the MR (mixed reality) field in the second half of 2023, and the planned smart car business.

However, headsets are expected to enter the market in earnest in early 2024, and it is necessary to keep an eye on their shipment status and determine if there is a possibility that they will become a new flagship product. Also, the future of large-scale commercialization of smart cars is still unclear. As for these new growth engines, it is necessary to continue to keep an eye on trends in the future.

Apple's shareholder return attitude is very appealing to investors. When selecting stocks, pay attention not only to performance and corporate competitiveness, but also to the degree of return to shareholders.Shareholder return attitudes can be measured by looking at company stock purchases and dividends.

By purchasing shares, companies can increase earnings per share (EPS), which in other words leads to an increase in return on equity (ROE). In turn, it will bring about liquidity in the market.

From these advantages,Stock buybacks play a very positive role in stock price increases.Dividends are the distribution of actual profits earned to shareholders. Stock buybacks and dividend distribution are forms of feedback on shareholders' investments.

If you look at the cash flow portion of Apple's cash flow statement from financial activities (cash flow from continuous investment activities on the current app), the total amount of stock buybacks in the year remains at a high level, and the amount of stock buybacks (net repurchases) for fiscal 2023Approximately 775.5 billionIt has reached the dollar. A total of about 4 trillion dollars of stock buybacks have been carried out in fiscal years spanning the past 5 years, and it can be said that there is nothing that comes out to the right in the US stock market.

Regarding dividends, there has been a slight increase in annual dividends over the past 5 years, and the cumulative dividend amount has exceeded 70 billion dollars over 5 years.

Apple's net assets remain at a relatively low level due to continuous stock buybacks and dividend distributions, but ROE is extremely high, reaching 172.0% in fiscal 2023.

Charlie Munger says that in the long run, the return on equity will match the company's ROE.

High ROE is one of the factors that increase investor attractiveness. However, you can see that continuous stock buybacks and dividend distribution play a major role behind this.

Therefore,In financial results reports, it can be said that it is possible to pay attention to the status of stock buybacks and dividends for each quarter.If these are stable and on an upward trend, this is good news for stock prices, and may provide some long-term support.

・Earnings stability is viewed from trends in iPhone division earnings and market share

→If earnings and market share become unstable, long-term stock prices will be adversely affected

・Look at whether the high gross profit margin (gross profit) resulting from competitive advantage is around 40%

→If gross profit margins weaken, there is a possibility that selling pressure will be applied to stock prices

・See trends in existing and new growth engines

→There is uncertainty about growth trends in the service business, so keep a close eye on trends in MR business and smart cars, which are future growth engines

・See what happens with stock buybacks and dividends

→If there is a share buyback and dividend increase when financial results are announced, this is still good news in terms of stock prices (there was no major change in Q4)

Has your level of understanding of Apple's financial results increased?