The recent earnings report for Apple did not bode well for its share price; from its recent highs at the beginning of August of USD 196-ish, it went down to USD 177-ish at the close of the market on Friday, that was almost a 9.7% drop.
Let us find out from the Apple press release for the summary of their 2023 third quarter results1:
- Quarterly revenue of USD 81.8 billion (bn), down 1% year-on-year (YoY).=
- Quarterly earnings per diluted share of USD 1.26, up 5% YoY.
- Generated operating cashflow of USD 26 bn.
Consolidated Financial Statements
If one wants to pinpoint the big fall, the consolidated financial statements attached in the same page as the press release may provide some insights. Under the statement of operations (or revenue statement), the quarterly YoY results for the main Apple hardware (iPhone, iPad and Mac) were around -5.4% across, with the nine-month YoY down about -6.2%. The category under Wearables, Home and Accessories posted a mixed result of around +2.5% and -3.4% for the three and nine-month YoY, respectively. These numbers, to a layman, could possibly mean a downtrend, at least short term wise.
However, the last category that carried the quarterly revenue reduction of up till -1%, was Services. Quarterly and nine-month YoY, it increased by +8.2% and +6.7%, respectively. Looking broadly over the long term, since the first quarter of 2013 right till the most recent, it had grown close to +475%2. And stating the obvious, it is the second highest revenue segment right after iPhone.
For growth counters like Apple, one of my guidelines is to see the amount of gearing either consistent or reducing at least for the past three years. Overall, since 2020, Apple’s total liabilities were increasing3, but it is fine with me as they were within my limits of “consistency”. Under the balance sheet, the total liabilities between September 2022 and July 2023 have reduced, and that is acceptable to me, at first glance. Moving on to cash flow, though undulating, it has been positive for at least the past three years4, another guideline of mine for growth counters.
So…Buy More?
I had mentioned in my post here that Apple would be relevant for at least another decade (discounting that the post was written back in 2020, maybe now for another seven years more? *chuckle*). Considering the financial strength, the large user base (2 billion active installed devices as of February this year5) and the all-encompassing ecosystem of Apple, the recent drop represented an opportunity to average down.
The next glaring question would be: at what price? Going by my 10-30 metrics6, using the period of one year between 1 August 2022 and 31 July 2023, the entry price would be around USD 161 ([196.45 + 161.51]/2 * 0.9), but instead I had nibbled at USD 184.50 on 4 Aug 2023 and then USD 177.50 on 11 Aug 2023, which I saw myself jumping the gun a bit. If it did not go down to USD 161 and went up instead, well, consider me lucky getting some. If it does go to USD 161, I would employ a much larger capital in entering. But, if you ask me what the bottom price will be before it goes up, I would also love to know the answer, too.
As the adage goes about prices, low can still go lower. Going by past statistics and future probabilities (my so-called guesstimate), unless a very major event happens (yes, I am thinking of an alien invasion), the trajectory of Apple would still be up. Not up in an astronomical sense like its early days, but it is still up, gradually.
And yes, dividends, Apple has been slowly increasing its dividends since it reinstated its dividend payment in 20137.
In conclusion, I will still declare that Apple is relevant, for another decade at least. Looking at the rising revenue of Services, the installed user base, and the Apple ecosystem…you get the drift.
Anecdotal Story
During our recent trip to Tokyo, Japan, from our observations of passengers in the subways and patrons in cafes and restaurants, the prevalent mobile phone brand is…Apple. During our flight on board Japan Airlines, most cabin crew were wearing Apple Watches (maybe as part of their work communications? *shrug*). It was glad to see many iPhone and Apple Watch users around (and contributing to our dividends). However, based on statistics, Apple held a roughly 49% share of the Japanese smartphone market in unit terms in 20228, so it is not really a majority as seen. From here, a lesson learnt is that we can combine statistics and observations as part of our fundamental analysis, and draw our own conclusions.
Disclosure
The Bedokian is vested in Apple, and iPhone's rival mobile OS Android’s originator, Alphabet.
1 – Apple reports third quarter results. Apple. 3 Aug 2023. https://www.apple.com/newsroom/2023/08/apple-reports-third-quarter-results/ (accessed 12 Aug 2023)
2 – Laricchia, Federica. Revenue of Apple from services segment 2013-2023. Statista. 7 Aug 2023. https://www.statista.com/statistics/250918/apples-revenue-from-itunes-software-and-services/#:~:text=Revenue%20of%20Apple%20from%20services%20segment%202013%2D2023&text=In%20the%20third%20quarter%20of,%2C%20Apple%20Pay%2C%20and%20licensing. (accessed 12 Aug 2023)
3 – Apple Total Liabilities 2010-2013. Macrotrends. https://www.macrotrends.net/stocks/charts/AAPL/apple/total-liabilities (accessed 12 Aug 2023)
4 – Apple Inc (AAPL). Ycharts. https://ycharts.com/companies/AAPL/free_cash_flow (accessed 12 Aug 2023)
5 – Shakir, Umar. Apple surpasses 2 billion active devices. The Verge. 3 Feb 2023. https://www.theverge.com/2023/2/2/23583501/apple-iphone-ipad-active-2-billion-devices-q1-2023 (accessed 12 Aug 2023)
6 – The Bedokian Portfolio (2nd Ed) p131-133.
7 – AAPL Dividend History. Nasdaq. https://www.nasdaq.com/market-activity/stocks/aapl/dividend-history(accessed 12 Aug 2023)
8 – Kaur, Dashveenjit. Four decades and billions of dollars in sales later, what’s next for Apple in Japan? Techwire Asia. 9 Aug 2023. https://techwireasia.com/2023/08/apple-remains-strong-in-japan/ (accessed 12 Aug 2023)
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