Can Apple Make a Comeback?

Apple (AAPL) announced first quarter of fiscal year 2016 total revenue of $75.9 billion, up 47 percent sequentially from $51.5 billion in fourth quarter of fiscal year 2015 and an increase of 2 percent compared to revenue reported in first quarter of fiscal year 2015.

Apple declared first quarter of 2016 net income of $18.4 billion or $3.28 per diluted share, an increase of 7 percent year-over-year from $17.2 billion during the same period last year.

The key technology company reported continued sequential and year-over-year expansion in both its top and bottom lines primarily due to favorable product mix, commodity costs and enhanced iPhone sales recorded during the quarter.

A closer look

Apple’s total revenue from key segments such as iPad, Mac, Services and other products grew slightly but, revenue from iPhone segment grew impressively over the fiscal years 2012 till 2016 mainly driven by significant year-over-year improvement in iPhone sales for the quarter.

Going forward, the consensus estimate among key analysts polled by Fortune expects Apple to achieve a sales target of 76.5 million units for three months ended December 26, 2015 as against 74.5 million units that were sold in first quarter of fiscal 2015.

The continued improvement in iPhone sales over the years is expected to drive sustainable long-term growth for the company while, delivering impressive shareholder returns and encouraging the company to further make significant growth investments.

China is believed to be the company’s second-biggest market and posted a net of $58.7 billion revenue contribution to Apple’s top line during 2015, or approximately one-fourth of the company’s sales during the previous year.
According to a latest report by IDC, Apple’s position in China is estimated to worsen further with usually weaker smartphone market of the country, which is projected to deliver smartphone shipment expansion of just 1.2 percent during 2015.

The way ahead

According to FBR Capital Markets, the tablet line of Apple is projected to continue to decline even after the strategic launch of the 12.9-inch iPad Pro in November with sales of an expected 18 million units, a decline from 21.4 million units sold during last year. Going forward, Apple is not believed to outperform the sales number for iWatch recorded in previous years but, it is estimated to introduce an innovative version of the latest smartwatch approximately during March.

The year-over-year declining iPad sales in China is projected to continue in the near future and believed to continue to hurt the company’s key margins as the country is expected to be a major market for Apple, increasingly supplying its top-class products and services.

Apple’s iWatch is giving a tough competition to FitBit’s newly launched wearable fitness devices and with the latter’s expectation of further offering lucrative stock options which is believed to further attract new investors to invest hugely in FitBit Inc.

Apple is facing tough competition from other major technology companies such as, Samsung with consumers in South America rapidly switching to Samsung smartphones and a majority of the customers in the significantly large smartphone market of China now shifting towards the adoption of low-cost domestic smartphones.

The rapidly strengthening tough competition from other major technology companies is resulting in continuous erosion of Apple’s key margins and thus, forcing the company to devise new growth strategies in order to deliver complete sustainable long-term company growth.

The consensus estimate among 52 polled investment analysts evaluating Apple Inc. suggests that the company would outperform the market. This consensus rating is maintained since the investment analyst’s sentiments declined on Jan 19, 2011. The earlier consensus estimate suggested investors to buy equity in the company.


Overall, the investors are advised to “Hold” their position in Apple Inc. looking at the notable growth prospects of the company and its significantly debt-burdened balance sheet with huge total debt of $62.99 billion against weaker total cash position of $38.39 billion, restricting the company to make future growth investments. The profit margin of 22.87% seems impressive. The PEG ratio of 0.90 indicates weak company growth. However, Apple has logical valuation with trailing P/E and forward P/E ratios of 10.05 and 9.40 respectively which is somewhat better than the industry’s average P/E of 17.68 and depicting a low-priced stock.
Published on Feb 8, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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