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Apple Q4 Results

148 points by css 7y ago

breatheoften 7y ago
What exactly is the advantage of reaching a cash neutral position? If you are a company that can reliably do that does that mean you no longer have to grow — since your investors are primarily attracted to a reliably stable ability to generate dividends?
- LudwigNagasena 7y ago
  They have cash that they don’t use neither for operations nor for investments. It is inefficient. Reaching net cash neutral position would mean that all assets are used in the most productive way.
- throwaway5752 7y ago
  As the owner of a company (a shareholder) it is desirable because if your company isn't in the business of capital allocation then excess cash accumulation is reducing their ROE and your ROI. And yes, the company still has to grow. But as a company executive you are viewing existing and new business opportunities through their net present value. If you don't have business opportunities that meet the thresholds you have in place for a project, then extra cash serves no purpose. This ignores a whole bunch of complicated other stuff (stress testing capital requirements and what sort of balance sheet has great enough margins of safey, long term capital allocation given market dislocations, etc). But that's why being net neutral on cash is in general a good thing.
  - jjtheblunt 7y ago
    Why do you say the company has to grow?
    - throwaway5752 7y ago
      At a least keep up with inflation in order to have future value? I'm almost didn't write this because I didn't want to deal with the "why do we have to grow" responses. If you are a single proprietorship then go nuts. Do what you want. If you take investor money you are an investment, and you are legally obligated (at top levels, via fiduciary obligations) to operate things to generate return. That's also why you have other corporate structures like B/public interest corps, mutuals, credit unions out there that don't obligate growth. Apple has to grow because it's public Delaware C corp. Or they have to return cash so owners can invest it elsewhere. Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. I'm not defending it, but explaining it.
      - will4274 7y ago
        > Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. It's worth emphasizing this point because it's a common misconception. Companies don't have a legal obligation to grow - they have a legal obligation to do what their investors want. But being publicly traded virtually gaurentees that your company is owned by people who want it grow or will be owned by people who want it to grow.
    - deleted 7y ago
      [deleted]
    - zaphirplane 7y ago
      Perhaps it’s the P/E ratio in valuation. If a company isn’t growing the premium portion of its stock price reduces and the stock price drops. TLDR; stock price includes a portion reflecting increased future growth
      - appleiigs 7y ago
        This is the real reason why CEOs are on a never-ending quest to grow even if it's detrimental. They are measured and compensated on share price. And share price is mostly driven by growth prospects. This is the real reason why Apple needs things like 3 camera lenses (just like Gillette needs 3 blades) and thin isn't thin enough. If you're a private company, you can do things like Hacker News and Craigslist where you don't change for the sake of change. EDIT: to show the impact of growth prospects: Right now, Apple's P/E ratio is 20x with share price of $243. But in 2016, P/E was 11x with share price of $100. That is a 143% increase. If you look at revenues, 2019:$259B compared to 2016:$216B - which is only a 20% increase. Look at the article[0] from 2016, it says stuff like: Apple shares are tanking this week because of a report in Japan's Nikkei newspaper that Apple plans to slash its output of iPhone 6S and iPhone 6S Plus by 30%. That comes on the heels of an Accenture report warning that demand for smartphones is waning. People don't believe the newer models are all that much better than what they currently have, so they don't want to pay for an upgrade. [0] https://money.cnn.com/2016/01/08/investing/apple-stock-100/index.html https://money.cnn.com/2016/01/08/investing/apple-stock-100/i...
    - xkjkls 7y ago
      They have to provide a risk-weighted return similar to the current average stock, otherwise they should be revalued to the point at which they would provide that.
    - clairity 7y ago
      strictly speaking, a company doesn't have to grow (no, there's no law nor even fiduciary duty to grow), but it's certainly incentivized as such, because valuations are most sensitive to growth rate.
- 1123581321 7y ago
  The advantage has been explained well by the sibling comments. They are not promising such a big dividend that they can’t invest cash into increased operations and R&D. A company that is primarily valued for its dividend is one that has promised such a big dividend that it risks cutting the dividend when it has to grow or fix problems (like GE.) Maestri is not going to let that happen, which is why they are approaching net cash zero carefully over time and majorly using buybacks, which do not set the same expectation for investors as dividends.
- privateSFacct 7y ago
  The history is that apple had a crazy cash position partly because of the need to keep cash overseas to avoid tax on repatriation. What they did was borrow against that overseas cash to get US based on dollars. Cash neutral doesn't relate to growth, if you grew you'd need to increase cash to cover working capital needs generally (ie, Apple first has to pay for parts, inventory, factories, staff for them etc before it gets revenue from sales). Excess cash above this - it can be argued is not useful for apple to hold. Ie, investors can earn as much on cash as apple AND might want to invest it in things that theoretically could earn more - especially now with low interest rates. They can get to cash neutral a couple of ways. Because gross net income is going down, share buybacks one option - they've already been doing lots of that. Dividends is another. Pushing a bit on R&D might be another. No rush on that change.
  - microtherion 7y ago
    Not only is excess cash not very useful, I'd argue that it can be actively harmful, as it makes the company a target for a leveraged buyout. Though maybe this does not apply to Apple, as a potential buyout would have to be about 30x as large as the largest leveraged buyout in history.
    - tclancy 7y ago
      Yeah, lots of cash leaves you vulnerable to greenmail, but when you have the most cash, you’re probably ok.
    - privateSFacct 7y ago
      What is impressive in some ways is their spending discipline with this mountain of cash. Many business have tried to buy their way to growth with horrible results in my view.
  - pazimzadeh 7y ago
    Well, they should have repatriated it. The only reason they're not is because they're hoping to get a one-time tax cut from a Republican administration, and with the amount of money involved it was worth it to wait out Obama, who wouldn't have any of it.
- Despegar 7y ago
  One benefit is that people will stop writing dumb posts about what companies you should buy
- mahgnous 7y ago
  That money can be used to make other money for shareholders, either product development, buying into other industries, financial investments, etc. Holding on to that cash isn't doing anything for them.
ihuman 7y ago
MacStories and Six Colors created graphs comparing the data from this quarter to past quarterly results https://www.macstories.net/news/apple-q4-2019-results-64-billion-revenue/#graphical-visualization https://www.macstories.net/news/apple-q4-2019-results-64-bil... https://sixcolors.com/post/2019/10/apple-results-64b-in-revenue-on-record-services-income/ https://sixcolors.com/post/2019/10/apple-results-64b-in-reve...
- privateSFacct 7y ago
  What terrible charts. I won't go through it line by line but why highlight Q1 vs Q4 instead of prior year Q4 vs current period Q4 (ie, year vs year). Highlighting periods with holiday sales against current nonholiday periods is ridiculous.
  - ihuman 7y ago
    I updated my comment to include Six Colors's article, which has more year-over-year graphs
    - nier 7y ago
      Most of the graphs on Six Colors have 2019-Q4 missing and some of the numbers are wrong. For example compare total revenue change for 2019-Q2 with the actual numbers in the second chart above.
      - sulam 7y ago
        ... not paying close enough attention to Apples fiscal year...
        mercutio2 7y ago
        Apple’s fiscal year begins in October and ends the following September. The just released results were for the fourth quarter of the 2019 fiscal year, 2019-Q4.
mikece 7y ago
Is it too early to tell how much the Apple Card contributes to Apple's revenue?
- hbcondo714 7y ago
  It may be an issue of Apple simply not disclosing specific Apple Card numbers. Right now in their earnings release to the SEC [1], Apple only lists net sales by category for iPhone, Mac, iPad, 'Wearables, Home and Accessories' and Services [1] https://www.sec.gov/Archives/edgar/data/320193/000032019319000117/a8-kexhibit991q4201992.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193190...
- ogre_codes 7y ago
  Apple Card is likely one of those services which will have little impact on revenue and earning, but outsized impact on stickiness of the iPhone as a platform. If you prefer Apple Card and the way you interact with it, it's going to be that much tougher to move to Android.
  - SlowRobotAhead 7y ago
    Have I missed some feature of the Apple Card that exclusively ties with Apple Pay (nfc)? I love Apple Pay, have all my cards in Wallet, don’t have an Apple Card. So I don t see how it’s a lock-in feature.
    - pertymcpert 7y ago
      It's not Apple Pay, it's the wallet. You used the wallet to track spending and pay it off, and collect the cash back.
- xkjkls 7y ago
  Probably negligible. I mean, the company will still have 70+% of it's revenue/income just from it's flagship product.
bradhe 7y ago
> revenue between $85.5 billion and $89.5 billion A $4B margin is a pretty big margin...
- selectodude 7y ago
  The target is $87.5 billion +/- 2.5 percent. Seems pretty reasonable to me.
  - bradhe 7y ago
    Totally reasonable, especially for a company like apple! In real terms, it ends up being like half a WeWork.
    - selectodude 7y ago
      Half of WeWork is probably closer in value to my car than anything.
- outside1234 7y ago
  Its an extremely large company, so that matches up :)
- code_duck 7y ago
  It's less than 5% though.
- xkjkls 7y ago
  Not for a company like Apple.
- coldtea 7y ago
  Big is a relative term, and here it should relative to the middle of those estimations. In which case, it's small (around 2.5% up or down way).
- FighterMafia 7y ago
  5% isn't
gigatexal 7y ago
Net income was? Also this BS about stock buybacks and dividends to become cash neutral is stupid. They should be betting on moonshot things that will be the next iPhone instead of all of this financial engineering.
- Godel_unicode 7y ago
  Giving the companies profits to the people who own the company is not "financial engineering". Apple has decided it cannot effectively use that money for R&D, so it isn't
  - freehunter 7y ago
    Stock buybacks may be a way to give profits to the people who own the company, but they are also 100% financial engineering considering it has a direct impact on stock price and earnings per share. Stock buybacks were illegal until 1982, being considered a form of stock manipulation. Even though it's legal now, it's still one of the best forms of stock manipulation.
    - dodobirdlord 7y ago
      > it has a direct impact on stock price A company buying its own stock at market price is a wash. The reduction in the value of the company and the increase in the value of each remaining share balance out.
- briandear 7y ago
  Those moonshots are in the budget and excess cash doesn’t have anything to do with a lack of moonshots.
- ogre_codes 7y ago
  If finding "the next iPhone" just required spending large enough sums of money, then Microsoft would have beat them to the punch before the iPhone came out. In all of history there have only been a few iPhone class disruptors. They are rare, and they come based more on timing and the presence of enabling technologies than any particular company simply investing billions in R&D.
tempsy 7y ago
Definitely my best stock pick of the year.
- newshorts 7y ago
  It was good, but everything went up this year. It was extremely easy if you bought the dip last dec. I’m waiting for another dip... hoping to cash in. Might be waiting a while after this earnings report & fed announcement today.
  - tempsy 7y ago
    Everything is easy in hindsight.
pastor_elm 7y ago
just last year I thought how much more can they grow now that they're over a trillion dollar market cap? Now I see people lining up for disposable $250 earbuds and now I know. (the same people that were happy with their terrible $15 ones btw)
FighterMafia 7y ago
For context: the Q4 revenue/EPS results came in ABOVE sell-side consensus per Factset and Q1 guidance is also ABOVE Factset consensus on both revenues and gross margins.

148 points by css 7y ago

What exactly is the advantage of reaching a cash neutral position? If you are a company that can reliably do that does that mean you no longer have to grow — since your investors are primarily attracted to a reliably stable ability to generate dividends?

LudwigNagasena 7y ago
They have cash that they don’t use neither for operations nor for investments. It is inefficient. Reaching net cash neutral position would mean that all assets are used in the most productive way.
throwaway5752 7y ago
As the owner of a company (a shareholder) it is desirable because if your company isn't in the business of capital allocation then excess cash accumulation is reducing their ROE and your ROI. And yes, the company still has to grow. But as a company executive you are viewing existing and new business opportunities through their net present value. If you don't have business opportunities that meet the thresholds you have in place for a project, then extra cash serves no purpose. This ignores a whole bunch of complicated other stuff (stress testing capital requirements and what sort of balance sheet has great enough margins of safey, long term capital allocation given market dislocations, etc). But that's why being net neutral on cash is in general a good thing.
- jjtheblunt 7y ago
  Why do you say the company has to grow?
  - throwaway5752 7y ago
    At a least keep up with inflation in order to have future value? I'm almost didn't write this because I didn't want to deal with the "why do we have to grow" responses. If you are a single proprietorship then go nuts. Do what you want. If you take investor money you are an investment, and you are legally obligated (at top levels, via fiduciary obligations) to operate things to generate return. That's also why you have other corporate structures like B/public interest corps, mutuals, credit unions out there that don't obligate growth. Apple has to grow because it's public Delaware C corp. Or they have to return cash so owners can invest it elsewhere. Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. I'm not defending it, but explaining it.
    - will4274 7y ago
      > Or the owners will fire the executives, or shareholder groups might vote for takeovers that offer greater returns. It's worth emphasizing this point because it's a common misconception. Companies don't have a legal obligation to grow - they have a legal obligation to do what their investors want. But being publicly traded virtually gaurentees that your company is owned by people who want it grow or will be owned by people who want it to grow.
  - deleted 7y ago
    [deleted]
  - zaphirplane 7y ago
    Perhaps it’s the P/E ratio in valuation. If a company isn’t growing the premium portion of its stock price reduces and the stock price drops. TLDR; stock price includes a portion reflecting increased future growth
    - appleiigs 7y ago
      This is the real reason why CEOs are on a never-ending quest to grow even if it's detrimental. They are measured and compensated on share price. And share price is mostly driven by growth prospects. This is the real reason why Apple needs things like 3 camera lenses (just like Gillette needs 3 blades) and thin isn't thin enough. If you're a private company, you can do things like Hacker News and Craigslist where you don't change for the sake of change. EDIT: to show the impact of growth prospects: Right now, Apple's P/E ratio is 20x with share price of $243. But in 2016, P/E was 11x with share price of $100. That is a 143% increase. If you look at revenues, 2019:$259B compared to 2016:$216B - which is only a 20% increase. Look at the article[0] from 2016, it says stuff like: Apple shares are tanking this week because of a report in Japan's Nikkei newspaper that Apple plans to slash its output of iPhone 6S and iPhone 6S Plus by 30%. That comes on the heels of an Accenture report warning that demand for smartphones is waning. People don't believe the newer models are all that much better than what they currently have, so they don't want to pay for an upgrade. [0] https://money.cnn.com/2016/01/08/investing/apple-stock-100/index.html https://money.cnn.com/2016/01/08/investing/apple-stock-100/i...
  - xkjkls 7y ago
    They have to provide a risk-weighted return similar to the current average stock, otherwise they should be revalued to the point at which they would provide that.
  - clairity 7y ago
    strictly speaking, a company doesn't have to grow (no, there's no law nor even fiduciary duty to grow), but it's certainly incentivized as such, because valuations are most sensitive to growth rate.
1123581321 7y ago
The advantage has been explained well by the sibling comments. They are not promising such a big dividend that they can’t invest cash into increased operations and R&D. A company that is primarily valued for its dividend is one that has promised such a big dividend that it risks cutting the dividend when it has to grow or fix problems (like GE.) Maestri is not going to let that happen, which is why they are approaching net cash zero carefully over time and majorly using buybacks, which do not set the same expectation for investors as dividends.
privateSFacct 7y ago
The history is that apple had a crazy cash position partly because of the need to keep cash overseas to avoid tax on repatriation. What they did was borrow against that overseas cash to get US based on dollars. Cash neutral doesn't relate to growth, if you grew you'd need to increase cash to cover working capital needs generally (ie, Apple first has to pay for parts, inventory, factories, staff for them etc before it gets revenue from sales). Excess cash above this - it can be argued is not useful for apple to hold. Ie, investors can earn as much on cash as apple AND might want to invest it in things that theoretically could earn more - especially now with low interest rates. They can get to cash neutral a couple of ways. Because gross net income is going down, share buybacks one option - they've already been doing lots of that. Dividends is another. Pushing a bit on R&D might be another. No rush on that change.
- microtherion 7y ago
  Not only is excess cash not very useful, I'd argue that it can be actively harmful, as it makes the company a target for a leveraged buyout. Though maybe this does not apply to Apple, as a potential buyout would have to be about 30x as large as the largest leveraged buyout in history.
  - tclancy 7y ago
    Yeah, lots of cash leaves you vulnerable to greenmail, but when you have the most cash, you’re probably ok.
  - privateSFacct 7y ago
    What is impressive in some ways is their spending discipline with this mountain of cash. Many business have tried to buy their way to growth with horrible results in my view.
- pazimzadeh 7y ago
  Well, they should have repatriated it. The only reason they're not is because they're hoping to get a one-time tax cut from a Republican administration, and with the amount of money involved it was worth it to wait out Obama, who wouldn't have any of it.
Despegar 7y ago
One benefit is that people will stop writing dumb posts about what companies you should buy
mahgnous 7y ago
That money can be used to make other money for shareholders, either product development, buying into other industries, financial investments, etc. Holding on to that cash isn't doing anything for them.

ihuman 7y ago

MacStories and Six Colors created graphs comparing the data from this quarter to past quarterly results https://www.macstories.net/news/apple-q4-2019-results-64-billion-revenue/#graphical-visualization https://www.macstories.net/news/apple-q4-2019-results-64-bil... https://sixcolors.com/post/2019/10/apple-results-64b-in-revenue-on-record-services-income/ https://sixcolors.com/post/2019/10/apple-results-64b-in-reve...

privateSFacct 7y ago
What terrible charts. I won't go through it line by line but why highlight Q1 vs Q4 instead of prior year Q4 vs current period Q4 (ie, year vs year). Highlighting periods with holiday sales against current nonholiday periods is ridiculous.
- ihuman 7y ago
  I updated my comment to include Six Colors's article, which has more year-over-year graphs
  - nier 7y ago
    Most of the graphs on Six Colors have 2019-Q4 missing and some of the numbers are wrong. For example compare total revenue change for 2019-Q2 with the actual numbers in the second chart above.
    - sulam 7y ago
      ... not paying close enough attention to Apples fiscal year...
      - mercutio2 7y ago
        Apple’s fiscal year begins in October and ends the following September. The just released results were for the fourth quarter of the 2019 fiscal year, 2019-Q4.

mikece 7y ago

Is it too early to tell how much the Apple Card contributes to Apple's revenue?

hbcondo714 7y ago
It may be an issue of Apple simply not disclosing specific Apple Card numbers. Right now in their earnings release to the SEC [1], Apple only lists net sales by category for iPhone, Mac, iPad, 'Wearables, Home and Accessories' and Services [1] https://www.sec.gov/Archives/edgar/data/320193/000032019319000117/a8-kexhibit991q4201992.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193190...
ogre_codes 7y ago
Apple Card is likely one of those services which will have little impact on revenue and earning, but outsized impact on stickiness of the iPhone as a platform. If you prefer Apple Card and the way you interact with it, it's going to be that much tougher to move to Android.
- SlowRobotAhead 7y ago
  Have I missed some feature of the Apple Card that exclusively ties with Apple Pay (nfc)? I love Apple Pay, have all my cards in Wallet, don’t have an Apple Card. So I don t see how it’s a lock-in feature.
  - pertymcpert 7y ago
    It's not Apple Pay, it's the wallet. You used the wallet to track spending and pay it off, and collect the cash back.
xkjkls 7y ago
Probably negligible. I mean, the company will still have 70+% of it's revenue/income just from it's flagship product.

bradhe 7y ago

> revenue between $85.5 billion and $89.5 billion A $4B margin is a pretty big margin...

selectodude 7y ago
The target is $87.5 billion +/- 2.5 percent. Seems pretty reasonable to me.
- bradhe 7y ago
  Totally reasonable, especially for a company like apple! In real terms, it ends up being like half a WeWork.
  - selectodude 7y ago
    Half of WeWork is probably closer in value to my car than anything.
outside1234 7y ago
Its an extremely large company, so that matches up :)
code_duck 7y ago
It's less than 5% though.
xkjkls 7y ago
Not for a company like Apple.
coldtea 7y ago
Big is a relative term, and here it should relative to the middle of those estimations. In which case, it's small (around 2.5% up or down way).
FighterMafia 7y ago
5% isn't

gigatexal 7y ago

Net income was? Also this BS about stock buybacks and dividends to become cash neutral is stupid. They should be betting on moonshot things that will be the next iPhone instead of all of this financial engineering.

Godel_unicode 7y ago
Giving the companies profits to the people who own the company is not "financial engineering". Apple has decided it cannot effectively use that money for R&D, so it isn't
- freehunter 7y ago
  Stock buybacks may be a way to give profits to the people who own the company, but they are also 100% financial engineering considering it has a direct impact on stock price and earnings per share. Stock buybacks were illegal until 1982, being considered a form of stock manipulation. Even though it's legal now, it's still one of the best forms of stock manipulation.
  - dodobirdlord 7y ago
    > it has a direct impact on stock price A company buying its own stock at market price is a wash. The reduction in the value of the company and the increase in the value of each remaining share balance out.
briandear 7y ago
Those moonshots are in the budget and excess cash doesn’t have anything to do with a lack of moonshots.
ogre_codes 7y ago
If finding "the next iPhone" just required spending large enough sums of money, then Microsoft would have beat them to the punch before the iPhone came out. In all of history there have only been a few iPhone class disruptors. They are rare, and they come based more on timing and the presence of enabling technologies than any particular company simply investing billions in R&D.

tempsy 7y ago

Definitely my best stock pick of the year.

newshorts 7y ago
It was good, but everything went up this year. It was extremely easy if you bought the dip last dec. I’m waiting for another dip... hoping to cash in. Might be waiting a while after this earnings report & fed announcement today.
- tempsy 7y ago
  Everything is easy in hindsight.

pastor_elm 7y ago

just last year I thought how much more can they grow now that they're over a trillion dollar market cap? Now I see people lining up for disposable $250 earbuds and now I know. (the same people that were happy with their terrible $15 ones btw)

FighterMafia 7y ago

For context: the Q4 revenue/EPS results came in ABOVE sell-side consensus per Factset and Q1 guidance is also ABOVE Factset consensus on both revenues and gross margins.