This week Apple released its quarterly results surprising investors and analysts with very strong earnings. After the announcement, the stock was up 6%. Although the stock is obviously undervalued and is trailing behind industry peers, the pressure to show growth in new markets and lack of new products still presents a big caveat in investing in the American tech giant.
On Tuesday, the company reported $78.4bn in revenues – the largest quarterly sales ever recorded in the Apple’s history. The record figures were helped by the great sales of iPhone 7 – the flagship product’s unit sales reached 78.29 million in the upbeat Christmas quarter. The jump in revenues from the mobile phone was largely due to the hike in average price – the more expensive phones were selling better driving the price to 695$ from 619$ per unit.
Although, the other divisions did not contribute that much to the 4th quarter success. The iPad sales were up from Q3, but continue to fall on the year-on-year basis. This quarter recorded the 13th consecutive decline. The new iPad Pro failed to boost the revenues of the stagnating division, while the new models of standard 9.7-inch tablet can’t match the demand of 2010-2013 when the innovative product was rapidly gaining ground all world. The good news for the company is that computers are still here and it seems that nothing could really substitute good old laptop. The new Mac, although largely criticized posted the best sales ever as well.
Apple sales breakdown. Source: Business Insider, Statista
The complimentary to the Apple product services are largely neglected as the secondary business of the company, but they prove to be even more and more profitable. App Store, Apple Music, iCloud, etc. almost reached the revenues of the computing department with 7.17bn in sales. The same goes for the Apple Watch – during the conference call Tim Cook, CEO, bragged that the quarter is the best for the smart watches as well. The analysts were not that optimistic. “Strategy Analytics”, a consultancy, estimated that sales were up from 5.1m to 5.2 m units and the market for smart watches grew by tiny 1% in 2016. The new wireless headphones are counted in the “Other” category and do not represent a big share of Apple’s sales, but if bundled with iPhone could do a good job in pushing the average price even higher.
The problem with Apple is that it now looks more as a value stock with a stable cash flow and no growth. The company heavily relies on the iPhone sales and had no star products since iPad. The new product that the company is supposedly working on are self-driving cars, although not known if Apple develops hardware or software. This is comforting, taking into account enormous research efforts of competitors in virtual reality and artificial intelligence.
The support for the claim came today when “Brand Finance”, a consultancy, updated its annual brand value ranking. Apple slipped to the second spot with a brand valued at $107.1bn, while Google overtook the first place with a value of $109.5bn. Commenting on the Apple’s brand value, which is down by 27%, the report says “Put simply, Apple has over-exploited the goodwill of its customers, it has failed to generate significant revenues from newer products such as the Apple Watch and cannot demonstrate that genuinely innovative technologies are in the pipeline”.
Most of the stock market analysts are long on the company anyway. With a P/E ratio of 15.42, a large pile of cash and the promises of strong US economy and lower corporate taxes, the company seems much undervalued and presents a good investing opportunity. The market is overwhelmingly bullish on Apple stock.
