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Apple 2Q numbers - A beat and miss

Apple inc., the world's largest company by market capitalisation, reported numbers for their second quarter of their 2017 financial year, after the market closed last evening. Revenues clocked an incredible 52.9 billion Dollars (although that fell short of what Mr. Market was expecting), earnings per diluted share clocked 2.10 Dollars (which was more than Mr. Market was expecting). The last comparable quarter clocked 50.6 billion in revenues and 1.90 Dollars in earnings. International sales represent 65 percent of all of the Apple business, it is fair to say that this is truly a global business with a very large "home" market. The services business continues to make big strides, having the best 13 week quarter in the history of the business.

The board has also announced that they have expanded the capital return program by 50 billion Dollars, the company would have, by the end of this current round (March 2019), returned 300 billion Dollars to their shareholders. That is in buybacks and dividends, which total 211 billion Dollars thus far. Of that, 151 billion has been in share repurchases. And talking of the dividend, that has been hiked by 10.5 percent to 63 US cents per share. That is payable in the second half of May, 15 days from today actually. Shares in issue, as you would expect with the buybacks being of such a big size, are down to 5.261 billion. This time last year it was 5.567 billion. The increase in operating income is not really that different from the last time (comparable quarter measurement), meaning that the increase in earnings per share is largely attributable to fewer share in issue.

On a geographical basis, the only region to show lower revenues, over the comparable quarters, was greater China. Mainland Chinese sales for Apple were 14 percent lower than this time last year. The Americas and Europe were strong, both registering low double digit sales growth. And then products and product sales, the iPhone still remains the king. After the wow reception in the first quarter of the new iPhone cycle (the iPhone 7), unit sales of the iPhone was 1 percent lower, whilst revenues was 1 percent higher. Services was huge, 18 percent higher than this time last year. The "other products" division, which is around 5 percent of total sales, grew 31 percent. Why that is significant is that it includes watches (as well as Beats products, Apple TV, and accessories), which indicates a strong future demand.

Cash on hand swelled to nearly 257 billion Dollars. Last night at the close, the company value was 789 billion Dollars, 32.5 percent of the company is just cash. Remembering that if they (Apple) need to repatriate that, they will be subject to paying tax. If there was a window to send some of that cash home, this cash may ironically be rated slightly higher. If that makes sense. The stock is down pre-market, by around 1.8 percent. Partly due to a miss in iPhone unit numbers, and partly due to the outlook for the current quarter "not as rosy". Fear not, I suspect that the release of the next phone will be incredible, people are going to want it. The ecosystem is becoming more and more important, the applications are endless.

Having seen an incredible run up in the stock share prices (stock is up 27 percent year to date), it may be that the share price "pauses" at this point, and drift for a bit. Having said that, I think that this is a great long term own and accumulate. They have the firepower to develop and bring the consumer what they want. Jony Ive and his team are key to product development. I suspect they will be key to the next great product that the company will develop. It will come, just stay patient, the company makes an amazing product that people want. And it has a luxury appeal, at an affordable level. Everyone likes and loves pictures and sharing. You need a great tool for that, the iPhone is one of two that people currently "want". We continue to accumulate and continue to rate the business a buy. More in the coming weeks.


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