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Apple Inc. (Ticker: $AAPL) - Brief Breakdown
For the full article check it out here.
Company Description and Qualitative Analysis
Apple Inc. $AAPL is an American multinational technology company that specializes in consumer electronics, computer software and online services. Apple designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. Apple famously offers the iPhone, Mac line of computers, iPad, Apple watch, AirPods, Apple TV, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories. Apple even has Apple Arcade as a game subscription service, Apple Music, Apple News+, and much more. Apple was the world’s largest technology company by revenue in 2020 (totaling $327 billion) and as of 2021 is the world’s fourth-largest PC vendor by unit in sales as well as the fourth-largest smartphone manufacturer. Apple is a tech giant. There are more than 117 million iPhone users in the United States, accounting for 47% of the total smartphone market. On top of mobile phones, Apple has a 7.4% share of the PC industry. If AirPods were a standalone company, it would have a market valuation of more than $175B, making it the 32nd largest company in the United States. Although Apple started as a computer company, it has gradually transformed and diversified via strong commitments to R&D and innovation. Apple has become dominant in multiple sectors, even creating a tablet sector which previously did not exist. Apple has been able to accomplish this growth despite a history of relatively unstable leadership. Apple is a global tech giant that continues to grow and widen their moat. Apple is the largest customer of Taiwan Semiconductors which may have issues detailed below in production of chips for Apple products.
Quantitative Analysis
At the time of this writing (8/7/2022), AAPL is trading at $165.35 with a market cap of $2.66T and a 52-week range of $129.04 - $182.94. Apple reported a record revenue of $83.0B (+2% year over year), earnings per diluted share of $1.20, and $23 billion of operating cash flow. Return of equity (ROE: Net Income / Total Equity *100) of Apple Inc. is 152.97%, the price to earnings ratio (P/E) is 27.33, and net margin (net income / revenue) is 25.71%. You can view AAPL’s 2022 Q3 earnings here and their 2021 Annual Report here.
Bullish Thesis
Here are three points to support the bullish thesis:
- Data Storage: Apple has seemingly cut every single app and website off from data mining from Apple customers. This is a HUGE development in the marketing market. Now Apple has the capability to use that data similarly to all other applications that have been using it but they are the only player in town. Data has been gold for companies recently and I see that trend continuing. Now that Apple has all that data, I look for them to begin to monetize it if that haven’t started already.
- Stickiness: Apple not only has a large repertoire of device types (phones, computers, etc.), but they’ve also mastered device interconnectivity. Via iCloud technology, device synchronization is relatively straightforward with Apple products. On top of product integration, Apple has nailed UI/UX. Their products are very easy to use, even for new customers. Device interconnectivity and user-friendliness are two characteristics of Apple products that make them incredibly “sticky” with customers. Once users have started using Apple products - and sending their data to iCloud - it becomes difficult to justify switching to a different brand. Having “sticky” products is great for Apple and bad for their competitors.
- Ability to shift into new markets: Apple has the ability to expand into new markets by leveraging user data. While most major tech companies monetize user data via advertising, Apple has an opportunity to leverage this data in other ways. For example, many of Apple’s mobile devices, including their phones and watches, capture human health data (heart rate, step counts, etc.). Such health data could be used within healthcare (e.g., remote health screenings for people in remote areas) and insurance settings. The built-in sensor suite of the iPhone includes accelerometers, gyroscopes, and GPS, all of which provide access to a wealth of user data. If Apple can strategically utilize this data - and do so in ways that do not cause mistrust in their customers - they may be able to create new revenue streams.
Bearish Thesis
Here are three points to support the bearish thesis:
- Lack of Change: Similarly to other giants like Facebook and Amazon, Apple has become all too familiar with lawsuits. Apple currently has an antitrust trial with Epic Games, the creator of Fortnite, which claims that Apple has built a monopoly over iPhone and iPad games by requiring all apps to be downloaded through its Apple App Store. Epic Games claims in the lawsuit that Apple extracts unfairly high fees from developers which can be up to 30% of all transactions and the App Store requires developers to use Apple’s payment system. Because Apple is a large company, it will continually have companies and people suing them and unfortunately that is the reality of having a large corporation. Hopefully Apple can have a favorable outcome, but if not this could mean changes to AAPL’s margins which could lead to less revenue.
- Supply Chain Disruption with Taiwan Semiconductors: COVID-19 presented a lot of challenges, but one of the biggest challenges was the disruption to the supply chains out of China and Taiwan. Apple has said that they believe to have an influx of chips from Taiwan Semiconductors, but it seems unlikely this will last as the China and Taiwan conflict begins to persist. This is an extremely big issue because not only has there been a Chinese data hack (detailed below) there is now a potential of China slowing the supply chain. The take down of Apple would not just be bad for products but also Apple employs thousands of people and this could affect the US economy more than people may think.
- China Data Hack: Currently Apple is attempting to get into the Chinese market, but it has led to difficulties. Apple was preparing to store the personal data of its Chinese customers on computer servers run by a state-owned Chinese firm. Tim Cook has attempted to say that the data is safe, but Apple's data center in Guiyang has largely ceded control to the Chinese government. Chinese state employees physically manage the computers and Apple has abandoned the encryption technology it uses elsewhere after China has not allowed it. This sentiment has worried many that data is not safe with the Chinese government. Hopefully Apple can work this out to keep the privacy of their customers out of the Chinese government’s hands.
For the full article check it out here.
greencandleinvestments.substack.com
Apple Inc. (Ticker: AAPL) - Brief Breakdown
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
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