Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

How Lucrative is the Apple (AAPL) money machine?

The Apple (AAPL) money machine stumbled a little in 3rd Quarter 2018. Walmart (NYSE: WMT) took Apple’s (NASDAQ: AAPL) place as the number three online retailer in America.

To clarify, Amazon (NASDAQ: AMZN) is still the number one online retailer with 43.1% of the market. Moreover, eBay (NASDAQ: EBAY) is the number two e-commerce brand with 7.2% of the market, eMarketer estimates.

Meanwhile, Walmart is number three with 4% of the market and Apple is number four with 3.9% of the market. However, Apple’s sales are still experiencing a healthy growth rate of 18%.

Apple (AAPL) is still prospering in e-commerce

However, Walmart’s online sales are growing at an incredible rate. For instance, eMarketer estimates Walmart’s sales grew by 39.4% in the first three quarters of 2018.

To be fair, Apple only sales electronics while Walmart retails almost everything under the sun. For example, sales groceries, hardware, tools, power tools, cosmetics, clothing, shoes, books, building supplies, and garden supplies.

Moreover, much of Walmart’s e-commerce growth is in groceries. Thus, Apple’s 3.9% share of the online market and 18% growth are still impressive accomplishments.

Additionally, I can argue that Apple’s commerce is effectively Amazon-proof. To clarify, Apple sells a select inventory of highly specialized products that appeal to a select clientele.

Hence, Apple is in a different category than Amazon and Walmart. Comparatively, Amazon and Walmart are mass retailers selling to everybody. Then again, Apple markets specialized electronics to the upper-middle class.

The Apple (AAPL) Money Machine is firing on all Eight Cylinders

AAPL shareholders can rejoice because the Apple money machine is firing on all eight cylinders.

To demonstrate, Apple (AAPL) recorded a gross profit of $24.084 billion on revenues of $62.9 billion for 3rd Quarter 2018. Correspondingly, Apple earned an operating income of $16.118 billion and a net income of $14.125 billion in 3rd Quarter 2018.

Astoundingly, Apple recorded a free cash flow of $16.482 billion and an operating cash flow of $19.523 billion for 3rd Quarter 2018. Hence, the Apple money machine is the souped-up muscle car of profitable companies.

Apple (AAPL) is the House of Cash

Not surprisingly, Apple (AAPL) had $66.301 billion in the bank on September 29, 2018. In detail, Apple recorded $25.913 billion in cash and equivalents and $40.388 billion in short-term investments. Therefore, Apple truly is a house of cash.

The cash gives Apple (NASDAQ: AAPL) the ability to muscle its way into new businesses. Notably, Apple is partnering with boutique movie studio A24 to make a series of feature films, The Washington Post reports.

Presumably, Apple will release the A24 movies through AppleTV, iTunes and Apple devices. However, the A24 films are not likely to be blockbusters.

To clarify, A24 produces high-quality arthouse type content aimed at an educated upper-class audience. In other words, A24’s movies are aimed at the people likely to buy an iPhone, an Apple TV, or an iPad.

On the other hand, Apple is hiring veteran TV executives and showrunners, Endgadet reports. For instance, Apple hired Battlestar Galactica and Outlander showrunner Ronald D. Moore to produce its new space opera, MacRumors claims.

How Apple (AAPL) can destroy Netflix

Having money to burn allows Apple to enter risky ventures like Show Business. In particular, I think Apple is able to do serious damage to Netflix (NASDAQ: NFLX).

To enumerate, Apple can afford to hire big stars, major directors, and expensive talent to produce high-quality programming without affecting its bottom line. In particular, Apple can cut large checks to stars and creators and avoid paying them royalties or a cut of the profits.

For example, Applecould write a $30 million or $40 million check to Robert Downey Jr. or Jackie Chan for a starring role. Hence, Apple can buy a lot of exclusive content with a readymade audience.

Uniquely, Apple can create exclusive content just for Apple TV or iTunes. Then give it away as a loss leader to buyers of its products. For instance, the only place you will see the next Robert Downey Jr. movie is on Apple TV.

On the other hand, Netflix reported $3.067 billion in cash and short-term investments on 30 September 2018. Thus, Netflix will have to pay talent in royalties or a cut of the profits.

Why you Need Apple’s (AAPL) Dividend

If you are a dividend investor you need Apple (NASDAQ: AAPL) in your portfolio. To clarify, Apple (AAPL) pays one of the best dividends around and its revenues are growing.

For instance, Apple shareholders received 73¢ dividend on November 15, 2018. Moreover, that dividend grew by 10¢ in 2018. Apple paid a 63¢ dividend on February 9, 2018.

Beyond that, Apple shareholders were enjoying a 1.51% dividend yield, an annualized payout of $2.92, and a payout ratio of 24.8% on 16 November 2018. Those shareholders have enjoyed five years of dividend growth.

Famously, Apple is a born-again dividend stock. To enumerate, Apple paid a dividend between 1988 and 1998. Annual dividends resumed in 2012, and the quarterly dividend restarted in 2014.

What I like most about Apple’s dividend is its safety. Apple’s dividend is safe because of healthy revenue growth. Thus, it buyers got their money’s worth at the $178.60 price recorded on 20 November 2018.

For example’s revenues grew at a rate of 19.63% during 3rd Quarter 2018. Consequently Apple can pay a healthy dividend, without taking resources from the company’s business or research and develop.

In particular Apple can produce movies and TV shows while paying a respectable dividend. Plus Apple has the money to develop better iPhones and invest in the Apple Car scheme.

Under these circumstances, Apple is one of the safest income and dividend stocks around today. I would advise putting Apple in your portfolio if you need income for retirement.