The year 2022 has been challenging in many ways, and significant techs are not exempt. The US’s most popular top seven tech businesses have lost more than $3 trillion in value over the past year. All the companies have suffered billion-dollar losses. However, Google’s Alphabet and Google have suffered a loss 20 times compared to Apple. As per CNBC, the market capitalization of Apple, Alphabet, Amazon, Meta, Netflix, Microsoft, and Tesla went down from $10.7 trillion to $7.69 trillion in the past year. The losses amongst seven companies, however, have not been split equally. The biggest reductions were seen by Alphabet, the parent company of Google, Amazon, Microsoft, Meta, and Tesla, ranging from $540 to $698 billion.
Apple’s Latest Earnings: A Marginal Beat But Services Growth Key Going Forward
Looking to invest in Apple? Apple’s fiscal Q4 result may have been more positive than anticipated, given how terrible the earnings reports have been for Big Tech. However, Apple’s high valuation multiples are supported by superior managerial performance, the strength of the brand, and its strong financial position.
- Tim Cook, the CEO of Apple, told CNBC that if it weren’t for the strong dollar, the company’s revenue would have grown by “double-digits” during the quarter. In Apple’s fiscal year 2022, total sales increased 8% to $394.3 billion.
- Despite indications that other smartphone manufacturers are having trouble keeping up with a recent drop in demand, Cook claimed that Apple’s effectiveness in phone sales has been strong. He also claimed that the company saw an increase in “switchers,” or customers who switched from Android to an Apple phone. He continued by saying there was a limited supply of the company’s premium phone, the iPhone 14 Pro.
- Even though data from component suppliers, chipmakers, and rival PC companies throughout the quarter pointed to a significant drop in desktop and laptop sales after the years during the pandemic, Mac sales were up over 25% to $11.51 billion.
- Additionally, Apple’s Other Products division, which includes the AirPods and Apple Watch, witnessed yearly growth and outperformed Wall Street forecasts. According to analysts, Apple’s wearables would most likely suffer if recessionary worries reduced discretionary spending. To $9.65 billion, that business saw an almost 10% yearly growth.
- According to Apple CFO Luca Maestri, the company’s record September quarter results again show its ability to perform well despite a challenging and unstable macroeconomic environment.
During the quarter, Apple earned over $24 billion of operating cash flow and gave back over $29 billion to its shareholders, continuing to invest in Apple’s long-term growth ambitions. In addition, Apple’s active installed base of products reached a new all-time high because of the power of its ecosystem, unrivaled customer devotion, and record sales.
Reasons Why Apple Stock is Looking Promising
If you are planning to invest in Apple, here are some of the positives:
- Apple generates a huge amount of cash
The enormous market value of Apple, which is close to $2.3 trillion, may deter some investors from deciding to invest in Apple. However, the firm has the cash flow to support this valuation. In the giant’s reported 12 months, the IT giant generated close to $108 billion in free cash flow (the money left over after daily operations and capital expenditures are taken into account). With such a significant cash flow, Apple can repurchase shares and pay dividends. For instance, Apple gave back $28 billion to shareholders in the most recent quarter through a blend of share repurchases and dividends.
- The services division of the tech giant is gaining steam
Investors may readily infer that Apple’s boom years are over if they only take a cursory look at the company. The revenue for the third quarter of the fiscal year rose merely 2% from the previous year. However, investors need to be aware that the results for the quarter were impacted by a mix of supply limitations that hampered sales and some macroeconomic difficulties that might only be a short-term obstacle.
Apple’s reduced numbers did show some strength, though. For instance, Apple’s services division saw revenue increase by over 12% YoY during the time period. The division serves as a vehicle for the firm to gradually increase monetization with its active and devoted customer base. It generates revenue through Apple’s portion of third-party applications sold on its platform, cloud services, Apple Pay, its own native apps, AppleCare, and other software and services.
The fact that management reported double-digit growth rates in transactional accounts, paying accounts, and accounts with paid subscriptions during the company’s fiscal Q3 earnings call helped highlight how effectively Apple’s services business is driving monetization. More specifically, during the third fiscal quarter, paid subscriptions throughout its services division climbed by 160 million YoY.
The high-margin services category is Apple’s second-largest business division after iPhone. Despite macroeconomic headwinds, its growth in recent years is a strong argument for the future expansion of the tech giant’s total business.
- Price Hike In Apple Products
Are you planning to invest in Apple? Apple’s recent move to increase prices on some of its significant Services offerings, such as Apple TV+, Apple Music, and the Apple One bundle, will probably give the segment’s momentum another boost going into fiscal 2023 rather than further dampening already weakened customer sentiment.
- Apple TV+
Early this week, Apple increased the cost of its Apple TV+ subscriptions from $4.99 to $6.99 per month and from $49 to $69 per year. However, even though Apple TV+’s price has increased significantly — by a whopping 40%+ — it still remains affordable compared to rival streaming services like Netflix, Disney+, and HBO Max, to name a few. This is true even for each service’s ad-supported tiers, which are / will be promoted as a “cheaper” alternative.
At the new rate of $6.99 a month, Apple TV+ still outperforms competitors in the pricing category. In addition, the streaming service is now ad-free. It offers unrestricted access to its complete library of scripted and non-scripted material, as well as live sporting events like “Friday Night Baseball.” This further demonstrates Apple TV+’s pricing benefit in the face of waning consumer confidence. Despite its most recent price increase, Apple TV+ is still more affordable than comparable offerings from competitors. In the long run, this significantly impacts the profit margins of the Services segment.
- Apple Music
For people, the cost of an Apple Music subscription will rise from $9.99 to $10.99 per month and from $99 to $109 per year. This would effectively raise the cost of the service above that of significant competitor Spotify’s (SPOT) counterpart, which is still currently offered for $9.99 per month. The price increase was implemented to make up for rising creator licensing expenses.
In particular, Spotify is presently struggling with shrinking profit margins brought on by the identical cost increases mentioned by Apple, highlighting the likelihood that similar price rises may occur soon nonetheless. Therefore, the hike in Apple Music prices might be viewed as a tactical move that, despite weak customer demand, will benefit the Services segment’s bottom line and reduce the danger of significant turnover.
- Apple One Bundle
Price changes have also been made for the Apple One package, which provides discounted access to up to six service subscriptions. If you are going to invest in Apple stock, note that since its launch in fiscal 2021, the Apple One bundle has played a significant role in the overall increase in Apple’s service subscription numbers and general traction, luring new customers to pay for subscription services they would not have otherwise subscribed to without the bundle discount.
Even after the recent price rise, the bundle discount gives the service-specific value propositions for subscribers—discussed in the previous section—an additional positive touch. We believe this will help reduce the risk of churn while supporting the expansion of the Services.
Investment Risks To Consider
- China Risks
China’s economy is still struggling due to intermittent COVID outages and a growing real estate crisis that has no end in sight. As a result, the country’s economy has continued to deteriorate, with September seeing a sharp decline in retail sales growth to only 2.5%. As a result, demand risks have been introduced to one of Apple’s most critical operational regions: China, which now accounts for around a fifth of Apple’s total sales and a quarter of its total profitability.
- Macro Risks
The major macro risks Apple faces are the FX and consumer slowdown. Given the company’s extensive international activities, rising currency conditions, and the Fed’s continued commitment to an aggressive rate hike trajectory to combat out-of-control inflation, FX risks are unavoidable. Additionally, Apple’s encouraging September quarter performance shows sustained resilience compared to peers, including PC/smartphone manufacturers and service providers that are losing market share.
The Bottom Line
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With Stockal, you may access more than 5,500 companies listed on US markets like the NASDAQ and NYSE. Stacks are carefully selected, actively managed portfolios with a theme. Fund managers are the ones who make them. To learn more about how to invest in Apple stock in detail, visit the Stockal website or install the Stockal App.