Apple Inc. Stock Q4 Results Beat Negative Outlook, Stock Rises

Key Points

• Apple's annual revenue came in at $394 billion, up 8% from the previous year.
• September revenue came in at $90.1 billion, up 8% from the previous year.
• Diluted earnings per share came in at $1.29 up 4% year over year.

Apple Inc. NASDAQ: AAPL continued to beat expectations, despite weakness in iPhone sales compared to previous years. While iPhone sales slightly affected growth, Apple continued to see significant increases in revenue due to computer sales from the iMac and China reopening.

Despite Foxconn reducing its production for the iPhone, Apple continues to struggle to meet demand from the iPhone 14 Pro, leading to possible delivery delay. Weaker demand rhetoric led to the Apple's downgrade a couple of weeks ago. Apple Inc. stock rose slightly after hours as the company reported stronger-than-expected results. 

Category Overview

Let's take a look at some individual products: 

• iPhone: Sales came in at $42 billion compared to $38 billion in the previous quarter, an increase of 10.5% year over year (YOY). Demand is expected to remain robust, despite Apple management expecting a demand slowdown, particularly with the iPhone 14 Pro. Apple has continued to gain market share but phone sales clearly haven't witnessed the decline that the market had expected.
• Mac: Mac sales came in at $11.5 billion, an increase of 27% as back-to-school activity and demand from China resulted in significant gains from the previous year. Sales have gone against the trends in the PC market. The PC market has been on the decline for the year, reiterating Apple’s dominant position within the global market.
• iPad: Sales declined from $7.1 billion to $8.2 billion, the only category that witnessed a decline. Furthermore, the iPad is not as competitive as some of the other tablets available on the market. Asian consumers have been far more focused on alternatives, which means the iPad has been reliant on American and European markets.
• Wearables, home products and accessories: Sales increased 10% YOY, in line with topline sales, as wearables continued to see incremental demand. Demand remains relatively robust, considering the global environment.
• Services: Revenue from the segment came in surprisingly weaker, with an increase of only 4.9%, services, especially the App Store, which had been witnessing strong sales until now. It remains to be seen how this segment will respond, but the outlook has clearly not lived up to expectations.

Financials

The company's financials came in relatively underwhelming for the year. Revenue increased by 8% during the fiscal year, with earnings per share increasing by 8.6%. North American sales rose by 10.6% and greater China sales increased by 8.6%. Greater China sales have been impacted by lockdowns throughout the year. As the strict lockdowns subside, sales could head back to double-digit growth next year, despite a recessionary outlook. The rest of Asia-Pacific witnessed slower-than-usual sales, increasing by 11%, which is surprising considering its growth potential. European and sales from the west also came in at single digits, while Japan witnessed a 9% sales decline.

Financial Valuation

Apple’s valuation remains within range at a price-to-earnings of 25x. The phone maker has seen its large cash pile deteriorate, as it has looked to buy back stock and hand back cash in the form of dividends to shareholders. The current cash and cash equivalents fell from $34 billion to $23 billion for the fiscal year. Short-term marketable securities declined to $24 billion from $27 billion and long-term marketable securities fell from $127 billion to $120 billion. Apple repurchased $89 billion worth of stock, which was the primary reason behind the decline in cash. Long-term debt reduced by around $11 billion during the quarter and Apple’s strategy to take on debt to fund buybacks will clearly not be an issue.

Sales could rise 10% in 2023 and Apple is likely to slow down its stock buyback. Costs have increased, but declining shipping costs and some ancillary costs means net income could improve by around 9%, which would mean EPS could come in around $6.1 to $6.2 in 2023.

Apple's current average price target of $160, according to the Marketbeat.com average, is within range, indicating an 11% upside.

2023 Outlook for Apple

2023 will likely see a recession affecting North America and Europe, which could drag down growth. On the other hand, China could make up some of that weakness as a low base leads to a significant increase in sales. The iPhone will compete with newer models and PC makers will discount products in order to get sales back on track, which could affect iMac sales. Apple will also look to improve sales in Africa and South America, on top of other developing countries in Asia and the Middle East, so it's less reliant on traditional markets like Europe and the U.S.