Apple’s $90bn earnings smash Q2 estimates

Apple’s Q2 earnings made mincemeat of analysts’ predictions as the pandemic prompted a hike in iPhone, iPad and Mac sales.

Wednesday’s quarterly update revealed a 54% leap in revenues to within a whisker of $90bn, with the major product ranges all helping towards the record haul

iPhone sales came in $6.4bn higher than predicted, Mac sales were up 33% and sales in the important Chinese market doubled.

The result was a huge boost for profits, up to $23.6bn from $11.3bn for the same period last year.

Apple’s Q2 2021 earnings versus expectations

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Apple chief exec Tim Cook said, “This quarter reflects both the enduring ways our products have helped our users meet this moment in their own lives, as well as the optimism consumers seem to feel about better days ahead for all of us,” 

The market obviously liked what they saw and heard, lifting Apple shares following the report.

Is it a good time to buy Apple stock?

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Some investors have been calling the top of the iPhone market for years, pointing to increasing prices, fewer enhancements and less of a public fervour around new product releases.

But the iPhone 12’s 5G connectivity coupled with consumers having a few more quid in their savings (and maybe feeling justified in shelling out for tech over the year) have propped up phone revenues in the latest quarter.

Reflecting upon super sales thanks to a unique set of circumstances risks missing the forward-looking nature of the stock market though.

No sooner have quarterly results been announced than analysts get to work on what they expect to see in the next reporting period.

The question now is if we could see a sustainable performance at this level, given the change in the pandemic story.

This is when investors turn away from the headline growth to what’s providing it. It’s clear that hardware has been a key driver - a factor unlikely to fuel even further revenue records once global economies begin to make their way out of lockdowns.

But kitting out individuals and businesses over 2020 and 2021 has the potential to create sticky customers basing their home-schooling, WFH setups and infrastructure around Apple products.

Even if the commute is back in fashion later this year, Cook doesn’t see an almighty drop-off in demand coming for Apple kit. He said, “Where this pandemic will end, it seems like many companies will be operating in a hybrid kind of mode.”

If that is the case, new device volumes will retreat but the result could be a new base level somewhere between pre and mid-pandemic sales.

The outlook for Apple stock in 2021

Investors hoping for a bit of news away from device mania might have been attracted to the announcements concerning the rest of Apple’s portfolio.

The firm is pumping over $430m into US suppliers and data centres, and Apple TV+ productions, adding 20,000 new jobs over the next five years.

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That inward investment looks like a necessary step if Apple is to make headway in the world of streaming services. It is currently well behind the likes of Netflix and Amazon in terms of market share and risks falling further behind if it doesn’t ramp up the spending.

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Apple announces $90bn in share buybacks

Investors will also have their attention piqued by news of Apple’s plans to spend $90bn on buying back its shares. It will return money to shareholders but is it an admission that the firm genuinely can’t find a better alternative for that cash?

Buybacks can be a sign of faith if management thinks its own shares are trading below the value it puts on the company. In the case of Apple, that’s quite a punchy statement given the massive upward rerating in shares over the past year. 

The last thing investors will want is for the firm to put that $90bn to work and end up losing money if the share price dips.

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What challenges does Apple face now?

The big tech elephant in the room is the ongoing global chip shortage which many are predicting could last into 2022.

Cook was keen to reassure the market that “there wasn’t a material issue with our results due to supply” but if that stops being the case, a long-term hold-up in access to chips could rein in revenues.

And then there is the unwanted attention big tech is getting from US lawmakers. Apple has received criticism lately, most recently in a Senate antitrust hearing last week, that it is abusing its platform power to squash smaller tech companies. 

Senator Amy Klobuchar, the Democratic chair of the antitrust subcommittee, called out practices among tech firms that “exclude or suppress apps that compete with their own products” and “charge excessive fees that affect competition”.

Cook was referring to dealing with the pandemic when he said “our work’s not done” after the results. But investors will know there will be a lot left to tackle even when normality resumes. 

Balancing a normalised hardware sales cycle with non-core business lines is one thing. Managing the firm’s impact on and dominance of the tech market in accordance with competition laws is quite another.

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