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Summary
- Apple has once again delivered a beat on street estimates, and this time by quite a surprise with 18% earnings growth. iPhone revenues also increased marginally, while other products and services helped it to deliver record June quarter.
- It has also announced 4 for 1 stock split, and shares are scheduled to trade on an adjusted-split basis by 31 August 2020. This will provide more accessibility to small investors and more liquidity in the market.
- Its consumer electronics proposition to customers backed by latest technology and innovation was a major differentiator in setting a strong quarter during the crisis.
Apple’s consumer technology proposition to its market helped it glide past COVID- 19 blues as working remote and digital push added decent tailwinds for an 11% increase in quarterly sales against same period last year. The tech major also announced a 4:1 stock split. On 30 July 2020, Apple shares were trading at USD 384.7 on Nasdaq.
Perhaps the 4:1 stock split will make sure that small sums can be invested in addition to more liquidity in the market via a larger number of shares outstanding. Equity investors of Apple as of 24 August will receive 3 additional shares for each share held.
Apple has undertaken stock splits in the past as well, and most recently it undertook in 2014, which paved the way for its inclusion in Dow Jones Industrial Average.
In its 3Q FY20 results ended 27 June 2020, it posted record revenue of USD 59.7 billion with 18% increase in diluted earnings per share from a year earlier to $2.58. iPhone revenues increased marginally to $26.4 billion, while every other category showed decent growth over last year.
International sales constituted 60% of total sales during the quarter. Despite marginal growth in iPhone revenues, it saw decent demand in iMac, iPad, and other products along with close to 15% growth in services.
Luca Maestri, Apple’s CFO noted that operating cash flow of $16.3 billion was also a record number for the company and activated installed base of devices was at an all-time high. With all geographic segments and major project categories helping it deliver earnings growth of 18% over last year.
Apple has announced $0.82 per share dividend to the shareholders on records as on 10 August 2020 and payable on 13 August 2020. Stock split has a record date of 24 August 2020, and split-adjusted shares would start trading from 31 August 2020.
Services revenue was $13.1 billion for the quarter and $39.2 billion for the nine months ended in June 2020. Product revenue for the quarter was $46.5 billion and $170.5 billion for the nine months.
Cost of sales for the quarter were $37 billion, delivering a gross margin of $22.7 billion on revenues of $59.7 billion. Operating expenses for the quarter were $9.6 billion, and operating income was $13.1 billion.
For the nine months ended June 2020, it has $7.45 billion as provision for income tax and a net income of $44.8 billion. Likewise, diluted earnings per share for the period is $10.16 against $8.86 in the same period last year.
Apple beats estimates again
Tim Cook and team continue with the pattern of beating street estimates, and this time they gave a large surprise. As the whole world was stay put at homes, Apple’s consumer electronic business has displayed strong resilience despite store closures.
Similar to its technology-based peers – Facebook, Amazon and Google, it has also played an important role in ensuring customers stay connected with its products and services. Apple also launched iPhone SE during the quarter reminiscing its previous versions
While answering Analyst questions, Mr Cook stated that iPhones trade across geographies with ‘very different competitive situations’ yet in most of the developed markets iPhones had been topping charts. Customers have well-appreciated the launch of iPhone SE at an affordable price and smaller form.
They also accomplished doubling service segment revenues in four years to $50 billion six months early. He also noted that the company expects non-iPhone category to deliver a strong year over year performance.
Apple has a ‘fantastic line-up’ in study at home/work at home category with iPad and Mac delivering strong results, and they expect this performance to continue. iPhone 11 has been very popular in urban China, and demand was resilient in Mac, iPad and services.
They are also witnessing a strong number of new customers in China. Mr Cook said three out of four Mac customers are new, and two out of three iPad customers are new. He noted economic stimulus might have also helped iPhone sales along with re-openings.
Mr Maestri said that strength in the US dollar had been a big negative impact on gross margins for several quarters, and FX impact on gross margin was 90 bps on sequential basis and 130 bps on yearly basis.
Shares of Apple traded over $400 in the after-market trading on Thursday in the US.
(All currencies in USD unless or otherwise stated)
