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

The trend of Apple, which boasts the largest market capitalization in the US stock market, is constantly receiving enthusiastic attention from market participants.Above all, the announcement of Apple's financial results is a major event that investors cannot miss.

Looking back on this year's stock price performance, Apple has risen about 50%, breaking historic highs.

As big tech companies announced good financial results one after another, what kind of financial results did Apple announce?

Let's analyze Apple's Q3 financial results!

According to the released Q3 financial report, sales declined slightly and net profit increased slightly. This isApple's sales declined slightly for the third consecutive quarterIt means.

Prior market predictions for Apple's Q3 financial results included the fact that they weren't that bullish, and short-term stock prices that received financial results fell slightly to about 2% after hours.

Last time,[Learn]Now, I talked about the three points of how to read Tesla's financial reports. This time, I'll tell you the key points for looking at Apple's financial results.

Apple has a stable presence 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 large.

Therefore, it seems good for us to decipher financial results by paying attention to some 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.

Incidentally, please know that Apple's sales tend to increase in Q1 (October-December), when there is a Christmas sales season, and new products are introduced to the market around September, which is Q4, in anticipation of that.

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. This stems from technological superiority in semiconductors developed in-house, the iOS ecosystem where software and hardware are integrated, and fabless management without factories.

A company's competitive advantage can be seen in the gross profit margin in financial statements.

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 remains 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 on stock prices.

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

In the existing hardware business, Apple'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, the sales growth rate of the service sector in the current fiscal year was markedly decelerating. 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. What was the sales growth rate of the service division in Q3, which had been closely watched?

According to the Q3 financial results report, sales of Apple's service divisionApproximately $21.21 billionSo, the growth rate is compared to the same period last year8.2% increaseThat was the result.

In addition to existing growth engines, future growth expectations areNew products and their growthIt is brought about by Examples include the headset “Vision Pro,” which was newly released in the MR (mixed reality) field, and the planned smart car business.

However, headsets are scheduled to be fully introduced to the market next year, so it is necessary to closely monitor their shipment status and determine whether there is a possibility that they will become a new flagship product. Also, the future of large-scale commercialization of smart cars is not yet clearly visible.

As for new growth engines, we need to continue to keep an eye on trends going forward.

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 this kind of meritStock buybacks play a very positive role in rising stock prices.Dividends are the distribution of actual profits earned to shareholders. Stock buybacks and dividend distribution are forms of feedback on shareholders' investments.

Looking at cash flow is the easiest way to confirm stock buybacks and dividends in financial statements.If you look at the cash flow portion of cash flow from financial activities, the total amount of stock buybacks each year is on an upward trend (expenses due to treasury stock acquisitions = net common stock issuance/repurchase amount), reaching 89.4 billion dollars in 2022. The cumulative share repurchases over the past 5 years have reached close to 400 billion dollars, and no one comes close to 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.

Due to continuous stock buybacks and dividend distribution, Apple's net assets remain relatively low, but ROE is extremely high, reaching 175.5% in fiscal 2022.

What does Charlie Munger look at in the long runThe return on equity ratio matches the company's ROEIt has been stated.

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.

thusIn 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 seen from trends in iPhone division earnings and market share

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

・See if 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 ((The gross profit margin for Q3 is approximately 44.5%)

・See trends in existing and new growth engines

→Growth in the service sector is slowing, 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 Q3)

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

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