Apple Inc. (NASDAQ: $AAPL) is a leading American multinational technology company headquartered in Cupertino, California. As of March 2023, it holds the title of the world’s largest company by market capitalization, boasting a revenue of US$394.3 billion in 2022. Apple ranks as the fourth-largest personal computer vendor by unit sales, the largest manufacturing company by revenue, and the second-largest mobile phone manufacturer globally.
Established in 1976 by Steve Wozniak, Steve Jobs, and Ronald Wayne, Apple went public in 1980, achieving immediate financial success. Renowned for innovative products like the Apple II and Macintosh, it remains a key player among the Big Five American technology firms.
Apple Inc – Q4 Assessment and Future Outlook
Throughout FY2023, Apple witnessed a consistent decline in sales across every quarter. This deceleration stemmed from various factors, including previous years’ high growth due to significant product upgrades and heightened demand during the pandemic. Despite a 0.7% YoY dip to $89.5 billion in the fiscal fourth quarter, gross profit, operating, and net income showed marginal increases. The services segment experienced a notable growth spike, reaching 16% in the quarter compared to mid-single-digit growth in prior quarters.
Looking ahead, Apple maintains a robust long-term outlook. Continual market share gains in developed quarters and expanding market share in India, though not yet substantial in financial terms, offer growth prospects. The increasing user base of Apple devices, fueled by chip innovations, creates opportunities to boost service sales. Traditionally reliant on app developers’ commissions, Services revenues now see growing contributions from digital advertising and payment services, driven by increased Apple Pay usage in physical stores.
Excitement Around Huawei’s Phones
2024 revenue estimates for Apple have decreased post-Q4 results, influenced by analyst adjustments in wearables and iPhone sales forecasts. Huawei’s recent success in China, a pivotal growth market for Apple, contributes to this downward trend. Chinese consumers’ preference for Huawei’s new smartphones, particularly due to their 5G capabilities, poses a challenge to Apple. With Huawei gaining traction, Apple’s smartphone install-base market share in China stands at approximately 18%, contrasting with its more established U.S. market share of around 42%.
Apple’s Valuation
Apple’s enduring business model, coupled with its share repurchase strategy, has played a pivotal role in driving the company’s earnings per share (EPS) growth in recent years. The significance of buybacks is escalating, particularly as Apple’s revenue growth is anticipated to decelerate in the upcoming year. Apple can sustain a consistent cash flow without necessarily unveiling new product categories. Despite potential challenges stemming from extended upgrade cycles, the company’s reliable revenue stream could find additional support through an uptick in Services revenue. Nevertheless, the present valuation of Apple stock, reflected in a forward price-to-earnings ratio of 29.5x, surpasses its three-year median of approximately 26x. The company is currently confronting the possibility of growth slowing down in China due to heightened competition from Huawei. If Apple fails to rebound from a lackluster 2023 in terms of sales, we anticipate continued downward pressure on the stock. Consequently, exercising caution, we recommend a hold rating for the stock at this time.
Stock Analysis
Apple shows strong development within a rising trend channel in the medium term. This signals increasing optimism among investors and indicates continued rise. The stock is approaching resistance at $197, which may give a negative reaction. However, a break upwards through $197 mark will be a positive signal. RSI diverges negatively against the price, which indicates danger of a reaction downwards.
Conclusion
Despite facing declines in two product segments, Apple Inc. showcases resilience with sustained sales growth, emphasizing the robustness of its ecosystem. Despite the mature smartphone market, the iPhone exhibits consistent growth. Additionally, new Mac models with enhanced processors are expected to drive demand. However, the potential for weakened iPhone sales in China poses a significant 2024 financial risk. With the stock trading at a high multiple valuation, the company currently presents limited upside potential and higher than usual risk.
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