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[Investment hot topic] How to interpret Apple's performance? Focus on these 4 key points.

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#Check performance with Futubull#As one of the largest companies in terms of market cap in the US stock market, Apple has always been the focus of the market, and its earnings reports are especially noteworthy. Apple will release its earnings reports after market close on May 2nd. As one of the top two companies in global market cap, how should we interpret Apple's earnings reports?

Apple has always been a presence in the US stock market similar to a compass. Its operation is very stable, and although the latest financial changes may affect short-term stock prices, the impact on its long-term trend may not be significant.

Therefore, we may need to focus on several key points in the financial report from the perspective of its long-term logic.These mainly include the foundation, moat, growth points, and dividends.

1. Foundation

To focus on the long-term development of a company, it is necessary to first understand the foundation of its business.As long as the foundation is stable, the overall performance will not be poor, and the stock price will also be supported.

Apple's foundation is undoubtedly its mobile phone business, including iPhone sales and market share. Why?

Firstly, the revenue from iPhone sales accounts for more than half of Apple's total revenue.

Secondly, the service industry, which accounts for about 20% and is also based on the Apple system and App Store;

Third, Apple's wearable device business and other businesses are also based on the foundation of mobile phone users.

So how can we judge whether Apple's mobile phone base is stable?Mainly by looking at the change in its market share trend.,If the market share can continue to grow, it indicates that its mobile phone base is expanding, otherwise the business foundation is shaky.

In the Futu app, we can see the trends of Apple's mobile phone market share. We can see that there is a significant change between each quarter, because of the timing of Apple's phone release, its sales also have peak and off-peak seasons.

We compare the sales peak season of Apple every year, which is the fourth quarter.We can see that from Q4 2019 to Q4 2022, Apple's mobile phone market share has increased from 19% to 23%, showing continuous improvement in the mobile phone user base.

In Q4 2023, according to Canalys data, Apple's market share is about 24%, maintaining a relatively stable momentum. However, with the resurgence of Huawei's high-end models and the strong sales of Xiaomi's latest flagship phone, Apple's market share has been greatly impacted.

According to the IDC report, Apple's global market share in Q1 2024 is about 17.3%, a decrease of 3.4 percentage points compared to the same period last year. This may also be a significant reason for the decline of Apple's stock price by more than 10% in the first quarter. We will continue to observe whether Apple can stabilize its market share.

2. Moat

The long-term competitiveness of a company depends on how deep its moat is.The deeper the company's moat, the greater the competitive barriers, the less competitive pressure, and the easier it is to maintain sustained success in the industry.

Many people believe that Apple is one of the companies with the deepest moat. Its competitive barriers come from the technological advantages brought by self-developed chips and the integrated iOS ecosystem of software and hardware.

The concept of a company's moat is actually a relatively abstract one.But in the financial reports, there is an indicator that can reflect this, which is the gross margin rate.

The stronger the competitive advantage of a company, the stronger its bargaining power with customers and the higher its gross profit margin. Apple's gross profit margin in its hardware business, represented by its mobile phones, has remained around 35% for most of the past few years. Coupled with higher gross profit margins from software services, the overall gross profit margin is maintained at around 40%.

What is this concept? According to institutional statistics, in 2022, Apple's mobile phones accounted for 18% of the market share and captured 85% of the industry's operating profit. It can be said to be a profit harvester.

For observing Apple's moat and competitive advantage, we can also continuously track Apple's gross margin level.As long as the gross profit margin can be maintained at around 40% or even higher, it indicates that its moat may still be relatively solid.,Otherwise, its moat may narrow, thus putting pressure on the stock price.

Apple's gross profit margin in the previous four fiscal quarters has exceeded 44% and has maintained a slight increase, which may indicate that its moat is still relatively solid. We can continue to observe whether Apple's gross profit margin in the latest fiscal quarter can maintain a high level.

3. Growth Points

If the fundamental base and moat of Apple are "defend the mountain", then its potential growth is "attack the mountain".

In terms of existing hardware, Apple's growth potential is relatively limited. For example, in the mobile phone sector, apart from the special circumstances in the 2021 fiscal year, Apple's mobile phone revenue has remained stable for most of the past few years.

Therefore, Apple's normalized growth comes mainly from service revenue.,This includes commission revenue from the app store, advertising revenue from Google's channels, and subscription service revenue, etc.

For a long period of time, Apple's service business revenue growth rate has remained above 10%, peaking at over 20%. Its share in total revenue has also increased from less than 10% to about 20%.

In the first two quarters of the 2023 fiscal year, Apple's service business revenue growth rate significantly slowed down, with a year-on-year growth of only 6.4% in Q1 and a further decline to 5.5% in Q2.

However, in the Q3-Q4 of the 2023 fiscal year, Apple's service business revenue growth rate gradually stabilized and rebounded, reaching 8.2% and 16.3% respectively. In the Q1 fiscal quarter of 2024, Apple's service revenue was about 23.1 billion, a year-on-year increase of 11.3%, still maintaining a double-digit growth rate.

In the upcoming latest fiscal quarter, we need to observe whether the growth rate of its service business revenue can remain relatively high.

In addition to the existing growth areas, Apple's future growth expectations also come from the potential growth brought by new product lines, including the Vision Pro head display released in the second half of 2023 in the MR field, as well as the smart automobile business under development.

However, the head display will not be launched until early 2024, and we need to observe its subsequent shipment to see if it can become a new phenomenon-level product. The large-scale commercialization of smart automobiles is also far from certain, and it is only a potential business reserve that needs continuous observation and tracking in the future.

4、回購和分紅

Before investing in a company, investors not only need to pay attention to its performance and competitiveness in the industry, but also need to consider the company's friendliness towards shareholders. So how do we measure a company's level of consideration for shareholders?最簡單直接的辦法就是去看它的回購和分紅。

Buying back shares can increase earnings per share, improve return on equity (ROE), and inject additional liquidity into the market, which can be said to be a three-pronged approach that has a very positive effect on stock price appreciation. On the other hand, dividends directly distribute the earned profits to shareholders. Both of these behaviors are ways of rewarding shareholders.

How can I see buybacks and dividends in the financial report? The easiest way is to look at the cash flow statement.

In the financing activities cash flow section of Apple's cash flow statement, we can see that Apple's buyback amount has remained high every year, with the buyback amount in the fiscal year 2023 reaching approximately $77.55 billion.In the past 5 fiscal years, the cumulative net buyback has reached nearly $400 billion, unmatched in the US stock market.

In terms of dividends, Apple's overall annual dividends have slightly increased over the past five years, with total dividends exceeding $70 billion.

Due to the continuous high buybacks and dividends, Apple's net assets remain at a low level, resulting in a particularly high ROE of 172.0% in fiscal year 2023.

Buffett once said that in the long term, stock returns are consistent with the company's ROE.Apple's high ROE also increases its attractiveness to investors. Much of this is due to the continuous repurchases and dividends.

Therefore, in each new financial report, we can pay attention to its buyback and dividend situation for each quarter.As long as this data remains stable and on the rise, it is a good sign that can provide a certain level of long-term support for the stock price.

In conclusion,

First, for Apple's earnings reports, the change in the company's mobile phone sales and market share is fundamental, the foundation of all businesses. If the foundation is unstable, it will not be conducive to its long-term stock price.

Second, the company's relatively high gross margin level is a concentrated reflection of its moat. If the gross margin weakens, it may also put pressure on the stock price.

Third, there is uncertainty in the growth trend of the company's service business, and the subsequent growth momentum needs to be seen in the MR business and the smart automobile business.

Fourth, Apple's buybacks and dividends are important supports for stock prices, and we can pay attention to the changing trends in these data.

(Note: This content is translated according to the original text in Chinese)(Note: This content is translated according to the original text in Chinese)Help you start your investment plan! Stack up new customer giftsUp to $2100 in rewards,Click here for the linkOr the image below, you can claim it

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