Apple Inc.: Q3 Earnings Call Overview

Trading with a market capitalization of over $700 Billion, Apple (NASDAQ: AAPL) is the largest company on the North American stock markets. Here’s what you need to know about Apple’s Earnings Call. The question is; is Apple a value investing stock?

Growing Financials

“Today, we’re proud to report record June quarter results with revenues of $49.6 billion and earnings of $10.7 billion. Our year-over-year growth rate in the fiscal third quarter accelerated over the first half of fiscal 2015. Revenues were up 33%, our fastest growth rate in over three years, and earnings per share were up 45%.”

Let’s put Timothy Cook’s quote into perspective – Apple is the largest stock trading on the North American markets. Yet, it still has a decent growth rate. Apple breaks the stereotype of Blue Chip stocks being cash cows, and having very minimal growth. However, Apple is a cash cow with great growth perspectives.

Growing Revenue

During the third quarter, $5 billion in service revenue was generated, and the revenue from the App store grew 24%.

Revenue growth rate from Greater China was 112%, and 87% growth in iPhone sales, despite IDC’s estimation of a 5% growth rate for the Greater China smartphone market

Let’s keep in mind; Apple has a strong worldwide presence. Overall, Emerging Markets grew at 79%. The $18 billion revenue derived from Emerging Markets represents 35% of the total company revenue.

iPhone Sales

  • More than doubled in Germany, Korea, Vietnam, and Malaysia
  • 85% growth in India, and Greater China
  • Over 45% growth in Italy, Spain, Netherlands, and Turkey

Mac Sales

  • 8 million Macs sold
  • 9% year-over-year growth

iPad Sales

  • 9 million units sold; down from 13.3 million (18% decrease)

Financial Position

Cash

  • Quarter end cash + marketable securities balance of $202.8 billion; 4.8% increase
  • $10 billion of term debt issued
  • Quarter end term debt balance: $50 billion

Dividends

  • $3.1 billion in dividends paid
  • $4 billion spent for 31.2 million Apple share repurchases

Margins

  • 7% gross margin; mainly due to strong iPhone sales
  • 4% operating margin

Earnings Per Share

  • $1.85 Diluted Earnings Per Share, 45% year-over-year increase

Cash Flow

$15 billion, third quarter record.

Luca Maestri – Senior Vice President and Chief Financial Officer

“Our growth was driven by the tremendous performance of iPhone, the introduction of Apple Watch and the continued strength of Mac and App Store sales. We achieved these great results in the context of a very challenging foreign exchange environment around the world and a reduction in channel inventory of over 1 million units across our product lines, which makes our growth performance even more remarkable.”

NASDAQ: AAPL: 12.79% YTD, Jan. 02 2015 – Jul. 24, 2015

Corporate Partnerships

            As Luca has mentioned, growth was driven by iPhone’s tremendous performance. The iPhones performance was supported through Apple’s relationship with corporations. United Airlines has renewed its iPad program with more than 10,000 iPad Air 2s, and is providing iPhones to its over 20,000 flight attendants (which sounds like a great benefit). Like many other companies, United plans to develop apps to enhance customer experience.

Customer Satisfaction

Apple continues to sell a decent amount of products; but are the customers satisfied? That is an important question to answer. Satisfied customers contribute to a sustainable business, as they tend to buy more products down the road.

According to a survey by ChangeWave, iPhone has the highest customer satisfaction rate of any smartphone brand. 86% of iPhone users planning to purchase a new phone plan on purchasing another iPhone. The next highest brand has a result of 50%. Customer loyalty is one of Apple’s competitive advantages – as it continues to drive its sales.

Customer Survey Results

  • 97% customer satisfaction rate for Apple Watch (Wristly)
  • 97% customer satisfaction rate for iPad Air 2 (ChangeWave)
  • Among consumers planning to purchase a tablet – over half plan on purchasing an iPad (ChangeWave)
  • 76% Market Share of the US market for tablets priced over $200, according to Luca Maestri – Senior Vice President and Chief Financial Officer

Technology

Apple has a strong track record of innovation, such as the introduction of the Macs, iPods, iPads, and iPhones.  According to the Earnings Call, Healthcare institutions, such as Ochsner Health System of Louisiana are using the Apple watch to gather information in regards daily activity, such as blood pressure level.

Apple has launched Apple Pay in the UK, and experiencing growing support from merchants of all sizes. Down the road, Apple also plans to introduce the News App, with iOS 9.

Conclusion

Despite missing analyst expectations by 3% for iPhone sales, Apple has great fundamentals. The company continues to have a higher than average customer satisfaction rate, and a strong track record for innovation. With declining outstanding shares, increasing dividends, and growing profits, the AAPL stock has potential to continue growing in the near future.

Earnings Call Transcript Source: Seeking Alpha
Apple Press Info: Apple Reports Record Third Quarter


Writer: Jelani Smith

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