Apple Inc is one of the U.S. biggest listed technology companies worth US$ 2.68 trillion in market capitalisation. Its business model comprises two key segments namely, “Products” and “Services”.
The “Products” segment refers to sales of iPhone®, iPad®, Mac® and wearables, home products and accessories such as AirPods®, Beats®, Apple Watch®, and as well as HomePod Mini® products. The “Services” segment shall include revenue derived from advertising, cloud, digital content, and payment services. To name a few, they include AppleCare®, Apple Pay®, App Store® and subscription-based services such as Apple Music®, Apple TV+® and Apple News®.
In this article, I’ll cover its long-term financial results and valuation. Hence, here are 8 things to know about Apple before you invest. They are as follows:
1. “Products” Segment Accounted for 80% of Apple’s Revenue.
Segmental revenues have increased by a CAGR of 8.2% in 10 years. It grew from US$ 143.6 billion in 2012 to US$ 316.2 billion in 2022. This is contributed by the company’s increase in key products namely:
- iPhone®
- Mac ®
- Wearables, home products and accessories (WHA)
They had offsetted Apple’s sales decline in iPad during the period.
Source: Apple
2. “Services” Segment Accounted for 20% of Apple’s Revenue.
Segmental revenues had increased by a CAGR of 19.74% in 10 years and thus, is a key driver of growth for Apple. It had grown from US$ 12.9 billion in 2012 to a total of US$ 78.1 billion in 2022. Despite it contributing 20% of Apple’s revenue, the segment has accounted for 32.8% of Apple’s total gross profits in 2022. This is because the gross margin for “Services” segment is 2x its “Products” segment in 2022.
Source: Apple
3. The U.S. is its Key Market. China is a Fast Growing Market.
The U.S. remains as Apple’s largest market. It accounted for 43% of its revenues for 2022 and had grown at a CAGR of 9.43% in the last 10 years. Meanwhile, for Apple, the Greater China market is its fastest growing market for revenues have grown at a CAGR of 12.66% in 2012-2022.
Source: Apple
4. Revenues and Net Income Grew at CAGR of 9.68% and 9.11%.
Growth in both segments in all geographical markets has contributed to Apple’s increase in revenue and net income. Revenue has increased at a CAGR of 9.68% from US$ 156.5 billion in 2012 to US$ 394.3 billion in 2022.
Apple has maintained its net profit margins (NPM) at 20%-30% over the past 10 years. This is attributed to stable gross margins from both of its segments in the period. As such, Apple’s net income has increased from US$ 41.7 billion in 2012 to US$ 99.8 billion in 2022.
Its earnings per share (EPS) which is adjusted for its 4:1 stock split on 28 August 2020, had increased from US$ 1.60 in 2012 to US$ 6.15 in 2022.
Source: Apple
Source: Apple
5. Apple’s Operating Cash Flows Grew at CAGR of 9.16%.
For the past 10 years, Apple generated US$ 778.4 billion in operating cash flows and raised US$ 119.2 billion in net long-term borrowings. Of which, it spent on:
- US$ 548.6 billion in net share buybacks.
- US$ 129.4 billion in dividend payments.
- US$ 107.1 billion in net acquisitions of property, plant & equipment.
- US$ 58.0 billion in net purchases of marketable securities.
Source: Apple
6. Apple Can Pay Off its Long-Term Debt in 1.21 Years.
As of 31 December 2022, Apple’s long-term debt stood at US$ 152.73 billion. In the last 12 months, it generated US$ 122.15 billion in operating cash flows. So, Apple has the ability to pay off its long-term debt in 1.21 years if it chooses to.
Formula:
= Long-Term Debt / Operating Cash Flow x 12 months
= US$ 152.73 billion / US$ 122.15 billion x 12 months
= 1.21 years
7. Apple’s Dividends per Share (DPS) Grew at a CAGR of 9.13%.
DPS had increased from US$ 0.41 in 2013 to US$ 0.90 in 2022. The increase was in tandem with its growth in operating cash flows during the period.
Source: Apple
Dividend yields for investors who’ve invested in Apple in later years were lower. This is because Apple’s increase in stock price was faster than its growth in DPS. In addition, Apple chose ‘share buybacks’ over dividends as its preferred way to use its operating cash flows to reward its shareholders (refer Step 5). Therefore, it contributed to lower dividend yields for investors who bought Apple later.
Calculated from Apple’s Financial Data; Stock Price from Google Finance
On 25 April 2023, Microsoft’s stock price was US$ 165.33. Based on its latest 12 months DPS of US$ 0.92, its current gross dividend yield works out to be 0.56%, excluding 30% withholding tax.
Formula:
= (DPS / Stock Price) x 100%
= (US$ 0.92 / US$ 165.33) x 100%
= 0.56%
8. Apple’s P/E Ratio Averages 27.2 in 2020-2022.
This is higher than P/E Ratio levels of 10-20 in 2012-2019 for Apple’s stock price had increased at a faster pace in 2020-2022. Overall, for the past 3 years, Apple had averaged 27.2 in P/E Ratio.
Calculated from Apple’s Financial Data; Stock Price from Google Finance
Conclusion:
Apple achieved growth in revenues, net income and operating cash flows in the past 10 years. This is attributable to improved results from both of its segments in its key markets namely the United States, Europe and Greater China. Here, as an investor, it is important to track the business results and its current valuation in order to make better investment decisions on it.
There you go, the 8 things to know about Apple before investing in it.
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