What can we learn from Apple’s Earnings Report?

Apple (NASDAQ: AAPL) has an interesting problem; it turned in a great earnings report. The problem is the earnings report was not as great as the last one.

If any other company had these earnings, the champagne corks would be flying. Since it is Apple we’re dealing with here; people are disappointed by great numbers. Despite that we can learn a lot from the numbers Apple just released.

Apple’s numbers can tell us a great deal about the economy and technology if we take a closer look. In particular, Apple can show us where consumer sentiment is going, and highlight potential spending trends. The device maker is not a good barometer of the economy, but its numbers can be a pretty good gauge of consumer behavior and sentiment.

The most important lessons we can take away from Apple’s latest financial numbers include:

  • Apple’s revenues did drop significantly in the first quarter of 2016. Apple revenue hit an astronomic high of $234.99 billion on December 31, 2015, but fell to $227.53 billion on March 31, 2016. That was a drop of $7.46 billion which indicates a major fall off in sales.

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  • This could indicate the beginning of a major economic slowdown, or simply a collapse in the demand for smartphones. One possibility is that the public is simply bored with new smartphones, or tired of paying more for the same basic phone with one new feature.

 

  • There’s also a possibility that Apple could be facing a backlash over Tim Cook’s refusal to help the FBI decrypt a terrorist’s iPhone. Even though the tech elite and the intelligentsia were on Apple’s side; average people may not have been. If this is the case, sales might pick up as the decryption incident fades in popular memory. An added danger for Apple is that Trump; or possibly Hillary, could keep the decryption affair in the spotlight by making it a talking point in the presidential campaign.

 

  • The company may have to rethink its increasingly elitist image which could be putting some consumers off. The popularity of Donald Trump demonstrates that average Americans seem to be in an anti-elite and anti-intellectual mood; which is bad for an elitist and intellectual brand like Apple.

 

  • Apple is still making a lot of money. It recorded a net income of $50.68 billion and a profit margin of 20.8% on March 31, 2016.

 

  • Apple is not making as much money as it used to. Apple’s net income fell by $3.05 billion during the first quarter of 2016. Apple reported a net income of $53.73 billion in December 2015. It is not clear if the income loss is permanent but we might never see numbers like that again.

 

  • Apple generates a lot of cash; it reported making $67.53 billion in cash from operations during the first quarter of 2016.
CHICAGO - OCTOBER 21:  Apple emloyees and media wander the new Apple Store during a media preview on October 21, 2010 in Chicago, Illinois. The new store opens on October 23 in Lincoln Park, a part of the city's Near North Side that has been trendy for several years.  (Photo by Brian Kersey/Getty Images)
CHICAGO – OCTOBER 21: Apple emloyees and media wander the new Apple Store during a media preview on October 21, 2010 in Chicago, Illinois. The new store opens on October 23 in Lincoln Park, a part of the city’s Near North Side that has been trendy for several years. (Photo by Brian Kersey/Getty Images)
  • The amount of cash Apple has been generating has been falling for some time. Apple’s cash from operations hit a high of $81.27 billion in September 2015; that fell to $75.01 billion in December, and $67.53 billion in March. This means the amount of cash Apple generates from its operations fell by $13.74 billion in the past six months.

 

  • Apple still has a lot of money in the bank. Apple reported $55.28 billion in cash and short-term investments for the first quarter of 2016.

 

  • Apple’s business is still capable of generating a lot of float. The amount of cash Apple had in the bank grew by $17.21 billion during first quarter 2016. Apple reported $38.07 billion in cash and short-term investments on December 31 and $55.28 billion on March 31, 2016.

 

  • To add icing to the cake: Apple reported a free cash flow of $9.002 billion on March 31, 2016.

 

  • The cash and short-term investment amount indicates that Apple could be on course for another big dividend payout.

 

  • Apple shareholders have nothing to complain about. On April 28, 2016, they were rewarded with a dividend yield of 2.14%, an earnings-per-share number of 8.988 and a return on equity of 40.05%.

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Apple is one of the Best Value Investments Around

Apple is still a really great stock that belongs in your portfolio in fact I would call it a widows and orphan stock. Such an issue; is an equity safe enough to provide for a family’s future.

Despite that Apple has some problems with its business. The days of massive increases in smart phone sales; and big profits from new iPhone releases, could be over.

Tim Cook and company seem to realize that which is why they are working initiatives such as Apple Pay and the chimerical Apple Car. The management team realizes that Apple will need to develop new sources of revenue, just to maintain the company’s position. Whether they can repeat the iPhones and iTunes magic remains to be seen.

Apple has become the New York Yankees of tech. No matter how well it does today, all people seem to care about is the past glory. That presents value investors with a great opportunity; because Apple is still a tremendous company and a good investment that is underappreciated. Apple is now one of the best value investments around.