ii view: Apple wows with its biggest-ever share buyback

A new iPad product and returning sufficient cash to keep shareholders happy while they await further product innovation. Buy, sell, or hold?

3rd May 2024 11:55

Keith Bowman from interactive investor

Second-quarter results to 31 March

Revenue down 4% to $90.8 billion (£72.6 billion)
Adjusted earnings up 0.7% to $1.53 per share
Dividend up $0.01 from Q1 to $0.25 per share (20p)

Chief Executive Tim Cook commented:

“During the quarter, we were thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks. We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month.”

Invest with ii: US Earnings Season | Buying US Shares in UK ISA | Cashback Offers

ii round-up:

Tech titan Apple Inc (NASDAQ:AAPL) announced plans for its biggest ever share buyback as it detailed quarterly sales down by less than Wall Street had feared.

The iPhone maker increased its annual share buyback programme to $110 billion from $90 billion last year, with the second-quarter dividend raised by 4% to $0.25 per share. Total group sales for the three months to late March fell 4% to $90.8 billion, helped by a stronger-than-expected performance in China. Analysts had pencilled in a fall to $90 billion.

Shares in the Dow Jones and Nasdaq listed firm rose 6% in afterhours US trading having come into this latest news down 10% year-to-date. That’s in contrast to a near 20% gain for Alphabet Inc Class A (NASDAQ:GOOGL, which makes the Android phone software and owns Google. The Nasdaq Composite index is up 7% so far in 2024.

Sales of Apple’s iconic iPhone fell 10% year-over-year to $45.9 billion. iPad sales dropped 17% from a year ago to $5.56 billion, with the company having not released a new iPad since 2022. The company is expected to announce a new iPad product very soon.

Apple also only recently brought to market its first major new product category since 2015, the Vision Pro virtual reality headset costing around $3,500 each.

Revenue at its highly scrutinised China business fell 8% to $16.4 billion, although that's better than the 11% fall predicted by analysts. Japanese demand was down 13% at $6.3 billion.

Although not offering formal guidance, accompanying management comments for the current third quarter pointed to hopes of low single-digit growth. That’s potentially better than the 2% growth predicted by Wall Street.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, raising its fair value estimate to $216 per share from $210.

Third-quarter results to the end of June are likely to be announced early August.

ii view:

Employing over 150,000 people, Apple's devices and services compete against offers from Samsung, Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), Spotify Technology SA (NYSE:SPOT), and Netflix Inc (NASDAQ:NFLX). iPhone sales remain by far its biggest category at just over half followed by Services at close to a quarter, Wearables, Home, and Accessories at around a tenth, and the balance of around 15% split relatively evenly between Mac PC and iPad sales.

For investors, questions about product innovation are now being asked, with updated iPhones now not as differentiated as before. Competition across its devices and services is intense, elevated borrowing costs could be pushing some consumers towards cheaper rival options, while a forecast price/earnings (PE) ratio above the 10-year average suggests the shares are not obviously cheap.

On the upside, the tying in of customers using its services on their Apple devices generates high customer loyalty. Both product and geographical diversity exist including exposure to payment services. Product innovation includes its new 3D headset, while investments in AI persist with the company’s Siri feature an expected focal point.

For now, and while device sales offer room for caution, the tech giant's record for product innovation still looks to leave this household name justifying its place in many already diversified investor portfolios.

Positives:

Diverse geographical markets
Strong customer loyalty

Negatives:

Dependency on iPhone sales
Strained relations between the West and China

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox