Hi YXI friends,

Today, we are going to review Apple’s latest earnings report. Apple as a consumer technology company has stopped growing for a while, but its shares keep going up. Unfortunately, in today’s bull market, that combination is more common than one would like.

Personally, I am not a Benjamin Graham disciple, only buying stocks when their valuations are extremely cheap with a margin of safety. I like to also weather-check with Mr. Market and see what drives stocks higher apart from the business fundamentals. This means we can trade under a much wider set of macro environments, rather than waiting indefinitely for the market valuation reset.

Knowing the fundamentals and the macro environment help us understand more deeply the risks involved in a stock, even if we love the witchcraft of chart reading.

There is also a trade idea at the end of this article. Let’s dive in!

Table of Contents

• 1. Growth Highlights

• 2. Profitability Margins

• 3. Share Buybacks

• 4. Valuation Is Expensive

• 5. Technical analysis

• 6. Tactical Trade Idea

• Rating: Equal Weight

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Growth Highlights

An iPhones Company

$69 billion Apple’s revenue went to iPhone in Q1 (quarter ending December 31st), contributing to 56% of the pie. This is 7% higher than its share in Q4 (quarter ending September 30th). It coincides with the iPhone 16 Apple Intelligence launch in English speaking countries.

Mac and iPad both share 7% of the quarterly revenue, at $8-9 billion.

Wearables, home, and Accessories share 9% of the revenue. This business segment includes Apple Watch.

Services bring 21% of the revenue, reaching $26 billion. They include Apple TV, App Store, and Apple Pay, cloud services, and advertising revenues.

We will review their individual performance below.

Quarterly Revenue

Apple recorded a quarterly revenue of $124.3 billion, up 4% from a year ago. For Apple, Q1 is always the busiest season of the year due to holidays.

In terms of the forward guidance, Apple expects to continue its low/ mid-single digit growth in Q2, with a strong USD potentially reducing revenue by 2.5%.

TTM Revenue

Apple’s trailing twelve month (TTM) revenue reached $396 billion in Q1, up 2.6% YoY. While some growth is better than nothing, Apple’s sales trend is hardly inspiring. This is particularly relevant when it comes to valuation.

Product Performance YoY

iPhone sales were essentially flat YoY at $69 billion. However, they were strong in Canada, Western Europe, and Japan.

The new iPhone 16 pro models featured A18 chips, better camera features (e.g. spatial photos), and Apple Intelligence capability. I have recently bought one myself, upgrading from iPhone 13. (Pro Tip: I don’t do the direct transfer of data from my old phone, so it actually does feel like a brand new device.) I do like it a lot, but Apple Intelligence did not wow me. From what I’ve read across on Google, Pixel’s Circle feature seems significantly smarter.

Apple Intelligence is already rolled out in English speaking countries since October. Apple plans to expand AI into French, German, Italian, Spanish, Chinese, Japanese, and Korean by April 2025. Apple claims that iPhone demand is higher in Apple Intelligence regions, which should mean greater demand for non-English speaking countries in Q2 and Q3.

Mac sales were up 15.5% YoY. This is very encouraging compared with Q4’s 1.7% growth. Apple boasts strong demand for the M4 MacBook Pro, iMac, and Mac Mini drove growth.

iPad revenue grew by 15.2% YoY, equally fantastic, vs. 8% in Q4. Over half of iPad buyers were first-time customers, with iPad Air and iPad Mini being particularly popular.

Wearables, Home & Accessories revenue actually declined by 1.7% YoY. Again, over half of the buyers of Apple Watch are new to the product. However, the new Series 10 did not manage to beat the previous year sales.

Finally, Services revenue rose by 14% YoY, with 1 billion paid subscriptions across Apple Services. Tap to Pay is also now live in 20 markets. Q2 is projected to grow at a similar pace.

Overall, Apple’s Mac, iPad, and Services enjoyed a great quarter. But the overall result was let down by iPhone and Wearables.

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