A Quarter to Remember for Tim Cook

Investors looking to park their cash in an emerging tech stock have to reckon with the earnings’ strength of a company like Apple (AAPL).

Eventually, any artisanal tech company hoping to deliver you a 10 bagger will need to adjust their sights that at some point in their future, they will need to directly compete with an Apple or Amazon (AMZN).

That is what is so scary for the little guys.

There were bountiful eye-popping numbers serving as ironclad proof to investors that sticking with the Goliaths is the sure-fire approach to grind your way up to more wealth.

A tech company Apple’s size expanding quarterly revenue to almost $90 billion last quarter representing a 54% year-over-year growth rate is stuff of legends.

A 54% growth rate is what us analysts give a green light for regardless of the size of the company.

Many analysts like to resort to explaining the upcoming stifling of growth in big tech as the law of large numbers.

Apple has shown they can overcome almost anything.

And this was supposed to be the company in which they have a China issue.

The consensus is that Apple is a brilliant business with an even better operational model.

Three reasons why Apple is firing on all cylinders.

First, Apple’s installed base growth has accelerated and reached an all-time high across each major product category.

Second, the number of both transacting and paid accounts on Apple’s digital content stores reached a new all-time high during the March quarter, with paid accounts increasing double digits in each of our geographic segments.

Lastly, Apple’s paid subscriptions continued to show strong growth.

This trifecta of outperformance was why revenue in the March quarter broke a record of $89.6 billion an increase of over $31 billion or 54% from a year ago.

Management saw strong double digits in each product category, with all-time records for Mac and for services and March quarter records for iPhone and for wearables, home, and accessories.

Products revenue was a March quarter record of $72.7 billion, up 62% over a year ago.

Company gross margin was 42.5%, up 2.7% from last quarter driven by cost savings, a strong product mix and favorable foreign exchange.

iPhone revenues had a March quarter record of $47.9 billion, growing 66% year over year as the iPhone 12 family continued to be in high demand.

With unmatched 5G capability, the best camera system ever in an iPhone, and advanced durability from Ceramic Shield, this family of devices is popular with both upgraders and new customers alike.

In the US, the latest survey of consumers from 451 Research indicates customer satisfaction of over 99% for the iPhone 12 family.

Turning to services. Another all-time revenue record of $16.9 billion with all-time records for the App Store, cloud services, music, video, advertising, and payment services.

Apple’s new service offerings, Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, as well as the Apple One bundle, continue to scale across users, content, and features and are contributing to overall services growth.

It was a quarter of sustained strength for wearables, homes, and accessories, which grew by 25% year over year.

Apple Watch is a global success story, and the category set March quarter records in each geographic segment, thanks to strong performance from both Apple Watch Series 6 and Apple Watch SE.

The Mac broke an all-time revenue record of $9.1 billion, up 70% over last year, and grew very strongly in each geographic segment.

This impressive performance was driven by the customer approval to new Macs powered by the M1 chip.

iPad performance was also outstanding with revenue of $7.8 billion, up 79%.

Where does Apple go from here?

First, hiring warm bodies and lots of them to try to meet all the extra incremental demand the company needs to satisfy in the near future.  

Over the next five years, Apple will invest $430 billion, creating 20,000 jobs in the process.

The investments will support American innovation and drive economic benefits in every state, including a new North Carolina campus and job-creating investments in innovative fields like silicon engineering and 5G technology.

After hiring, Apple is laser-focused on shareholder return.

They were able to return nearly $23 billion to shareholders during the March quarter. This included 3.4 billion in dividends and equivalents and $19 billion through open market repurchases of 147 million Apple shares.

Apple’s board has authorized an additional $90 billion for share repurchases. They are also raising their dividend by 7% to $0.22 per share, and continue to plan for annual increases in the dividend going forward.

Lastly, management threw a damp towel on the feeling of success by removing guidance and talking about headwinds.

Management said that coming up, they would not offer specific financial guidance because of “continued uncertainty around the world in the near term.”

They also said that the sequential revenue decline from the March quarter to the June quarter will be greater than in prior years.

Second, supply constraints will have a revenue impact of 3 to $4 billion in the June quarter meaning a lack of chips.

All in all, hard to be happier if you are an Apple long-term holder. This is a no-brainer buy and hold forever. Any substantial dip should be bought.