For Apple (Nasdaq: AAPL), 2015 has started with a bang. Earning a profit of $18 billion during the final three months of 2014, the latest Apple earnings report is the biggest ever from a publicly traded company.
The company’s revenue rose to $74 .6 billion from $57.6 billion in the previous year, a year-over-year increase of 29.5%. Gross margins rose to 39.9% from 37.9% over the same period, though overall margins were negatively affected by a rising dollar.
Still, Apple beat expectations across the board with only one exception – iPad. Even with a shrinking market for PCs, Apple grew its Mac sales by 9%. International sales now account for 65% of sales, overall sales in China rose by 70% and iPhone sales rose 46% compared to last year. Profit grew by 38%.
These are huge numbers.
The strong results weren’t necessarily expected. The $74.6 billion of revenue generated during the quarter is more than 10% higher than consensus estimates. Profit of $18 billion is more than 17% above consensus estimates. This was truly a blowout quarter for Apple. It’s no surprise the stock rose 5% in after-hours trading.
Apple’s cash pile has now grown to an absurd $178 billion.
This is enough to buy Delta Air Lines, United, Virgin America, JetBlue, Southwest, American, Spirit and Alaska Airlines combined AND still have enough left over to buy Harley-Davidson.
Part of what makes the $178 billion pile of cash and short-term investments so absurd is the fact that the company has already returned $57 billion to shareholders in the last 12 months.
The weak spot in the Apple earnings report continues to be iPad. Sales declined 22% compared to last year. That said, I certainly won’t be complaining as long as the earnings reports continue to look like this one.
Another weak area is Apple’s dependency on iPhone revenue. With iPhone responsible for $51.2 billion of Apple’s $74.6 billion earned in the quarter, iPhone accounted for just over two-thirds of Apple’s revenue.
Critics will suggest that because Apple’s holiday shopping season and overall fourth-quarter iPhone sales were so strong, sales will lag considerably in the coming months. If so, the effects could be severe for Apple because of how much of its revenue comes from iPhone.
But CEO Tim Cook specifically addressed this in the Apple earnings report conference call. Cook referred to the percentage of iPhone users who were using the latest iPhone 6 or iPhone 6 Plus versions as being in the “low teens.” This suggests that there is a considerable amount of pent-up demand for the newer – and more expensive – iPhone versions as existing users upgrade their older models.
Tim Cook also announced that sales of the Apple Watch are set to begin in April.
The reality is that even without a pickup in iPad sales or a successful launch of Apple Watch, investors are likely to be perfectly content so long as the parts of the business that are strong today continue to remain strong.
An Apple investor myself, I consider yesterday’s Apple earnings report to be my quarterly validation that the investment thesis is sound. Put simply, Apple continues to sell a lot premium technology products at premium prices and trades at a less-than-premium valuation.
Disclosure: I personally own shares of Apple.
Silicon Valley’s Dirty Little Secret
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