Apple (NASDAQ:AAPL) stock is rising after the company’s most recent earnings report. As expected, the firm has been struggling with iPhone sales and this weighed on overall revenues.
The company also announced a $110bn share buyback programme and hinted at a major artificial intelligence (AI) launch for its iPads. And the market seems to be viewing this positively.
iPhone sales
Apple’s revenues came in 4% lower than during the first quarter of 2023. This was largely expected and it was equally unsurprising that the biggest decline came from iPhones (-10%) and China (-8%).
There were some positives though. Services revenue grew 14%, causing margins to widen and earnings per share (EPS) to come fractionally ahead of the previous year.
With both services revenue and EPS hitting record highs, the company boosted its shareholder returns. This came in the form of a $110bn share buyback programme.
Overall, there weren’t any new risks for shareholders to worry about. That’s probably important – with antitrust concerns and issues in China, shareholders have enough to focus on for now.
Was the report that good?
Apple chief Tim Cook pointed out that 2023’s sales were boosted by $5bn in iPhone revenues delayed due to supply chain issues. Without this, overall revenues were up slightly and iPhone sales were steady.
I’m not sure this should encourage investors. While it might be realistic, the fact the latest numbers are a better reflection of the business than last year’s stronger numbers isn’t a positive thing.
As an Apple shareholder, I’m much more enthusiastic about the service revenue growth. I’ve thought for a while that this is the part of the business that investors should focus their attention on.
Not everyone agrees – and I accept that strong services growth can’t offset weak product sales indefinitely. But I view the report positively because of the services revenue, not the fact the decline in iPhone sales isn’t as bad as it looks.
Shareholder returns
At today’s prices, Apple’s $110bn share buyback programme could reduce the outstanding share count by just over 4%. That’s a significant return.
Repurchasing shares is risky though. A company buying back shares when they’re overpriced leaves shareholders worse off than if the company had done nothing.
Warren Buffett has been a vocal supporter of Apple’s share buybacks. But it’s probably worth noting that the Berkshire Hathaway CEO hasn’t added to the company’s stake in the iPhone manufacturer.
Berkshire actually reported a decline in its Apple holdings in its most recent 13F filing. But I doubt this was Buffett – I think it’s much more likely to have been a sale via the Gen Re portfolio.
Should investors buy Apple shares?
After a positive response to the latest earnings report, Apple shares are within 8% of their all-time highs. That’s unusual for a business that just announced declining revenues.
Despite this, I think the market’s underestimating the company’s strengths and overestimating the current risks. That’s easy to do, but it might be creating a buying opportunity for investors.
