Apple reported a 6% rise in revenue to a fourth-quarter record of $94.9bn, slightly ahead of market forecasts. This was driven by better-than-expected iPhone sales which more than offset a slight miss in Services, despite the latter growing by 12%. All regions saw growth except China, which posted a marginal decline.
Operating profit rose 10% to $29.6bn, helped by the top line growth and a tight grip on costs.
Free cash flow rose from $99.6bn to $108.8bn over the group’s financial year. Net debt was $31.5bn at the end of the period. There was an additional $91.5bn of long-term investments not included in those numbers.
Apple expects its first-quarter revenue to grow in the low-to-mid single-digit range (market consensus: 7%).
A dividend of $0.25 has been announced, up 4.2%.
The shares fell 1.9% in after-hours trading.
Our view
Apple’s fourth-quarter results delivered on both the top and bottom lines. Importantly, iPhone sales were strong in the period ahead of the first wave of Apple Intelligence features being rolled out. These features focused on summarizing content and image cleanup, and initial feedback has been positive.
That’s good news for a business that’s struggled to deliver real innovation in recent times. Gone are the days when each new iPhone was so packed with new features that consumers felt obligated to upgrade every year.
Many iPhone users in the US are on models that are over 3 years old, none of which will be able to tap into the new AI tools. The hope for Apple is that there’s enough substance in the new features to drive a multi-year upgrade cycle – we think that could be the case.
Partnering with OpenAI brings a large model to Apple products, while the team focused on smaller on-device models to work in tandem. That’s significantly cheaper and keeping as much data as possible on-device helps Apple squash some of the privacy concerns users may have had.
Away from the AI craze, a note of caution stems from competition in China after several quarters of revenue declines. Other big names like Huawei are directly challenging Apple and capturing a portion of local market revenue in the process. Some of these rivals boast larger installed product bases and more attractive prices.
Despite a slight disappointment in Services growth in the fourth quarter, we still view this as a key driver of profit moving forward. Services includes things like the App Store and Apple Music. This area of the business is higher margin because adding new users doesn't involve the same costs as building a MacBook or iPhone. But for Services to reach its full potential, it relies on growing hardware sales occurring in the first place.
While there are some extra risks to be considered, Apple's biggest asset remains its brand. The sheer scale of Apple's sales is testament to the grip that the shiny embossed piece of fruit has on global consumers. The loyal customer base means that there's an element of revenue visibility other businesses simply don't have.
Overall, we think Apple remains strong. It wasn’t first past the post in the AI race, but the cautious approach could end up being a shrewd move. We see further upside if AI features drive a multi-year upgrade cycle, but we must caution that this isn’t a magic wand. Economic conditions in the US are on a knife edge, Asia remains a tough battleground, and there are no guarantees.
Environmental, social and governance (ESG) risk
The technology industry is low-risk in terms of ESG, though some segments like Electronic Components are more exposed to environmental risks. Business ethics tends to be a material risk within the tech sector with everything from anti-competitive practices to intellectual property rights weighing. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Apple’s management of ESG risk is strong.
Apple’s huge scale means its primary ESG risk relates to business ethics. The group’s market dominance exposes it to growing regulatory risks. Of particular note is the growing antitrust concerns relating to the Appstore, where developers must pay 30% in commissions. The exposure to business ethics worries is medium and there is significant work that could be done to manage these risks more effectively. Apple has strong management of Governance risks, including board structure and shareholder rights. According to Sustainalytics, Apple’s overall ESG management is strong.
Apple key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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