4 Things Investors May Have Overlooked in Apple Inc.’s Recent Earnings

Apple's two biggest divisions are reporting better pricing, iTunes is growing by a significant amount, and the company is generating cash, hand over fist. It's also repurchasing shares and pays a decent dividend.

Feb 18, 2014 at 6:00PM

Apple (NASDAQ:AAPL) investors are a fickle bunch. We expect strong earnings and revenue growth all the time. We also expect huge advances in technology that no one else thought of. Oh, and if Apple could just give us all of the money it has on the balance sheet, that would be great, too. The company's last earnings report didn't look that inspiring on the surface, but there are at least four things that suggest Apple's business will improve in the future.

The biggest challenge facing the company is being solved
Pretty much everyone knows that the iPhone is Apple's most important product. With the iPhone representing 56% of the company's revenue, investors have every right to be ultra-critical of results.

Whether it's competition from Google's (NASDAQ:GOOGL) Android smartphone army, or newer entrants like the high-megapixel cameras on the newest Nokia Windows smartphones, Apple has no shortage of competition. The fact that Microsoft (NASDAQ:MSFT) is in the process of acquiring the Nokia handset business, suggests that the company's $56 billion cash hoard may be about to seriously threaten both Apple and Google's smartphone dominance.

That being said, Apple's iPhone sales increased by 6% on a year-over-year basis, and many investors were disappointed. However, a little perspective is needed. First, this 6% increase was on top of a 28% increase the prior year. Second, and maybe most important, revenue per iPhone improved.

In fact, the company generated $637 in revenue per unit, which was the second highest per-unit figure since the iPhone 5 was introduced. In addition, this represented a 10% increase in revenue per unit over the third quarter. This gives us the first item investors may have overlooked, the gross-margin killing Apple has taken from the iPhone may be stabilizing.

About to pad its results?
The second thing investors may have overlooked is that Apple's iPad business seems to be finding stable pricing ground as well. With Android tablets like the Google Nexus 7 selling for just $229 and Microsoft offering deep discounts on the first-generation Surface for $299, one might wonder how Apple's iPad business could keep up.

Apparently, customers see the value in the iPad and the Apple ecosystem. This division reported a better-than-13% increase in units sold in the current quarter. While revenue on these units only increased by 7%, the story here is similar to the iPhone.

With the introduction of the first generation of iPad Mini at $299, it makes perfect sense that some customers would choose this cheaper option. This is part of why Apple's revenue per iPad dropped from $467 last year to $440 this year. However, this $440 per-unit performance was very close to the $439 per-unit performance of the third quarter.

With the new iPad Mini with Retina display priced at $399, this should help pad Apple's results, as some consumers will choose this device rather than the cheaper iPad Mini first generation. With Apple continuing to make the full-sized iPad lighter and faster at the same $499 price point, it seems the iPad's unit pricing is finding its footing as well.

Tune into this
The third thing investors might have missed in Apple's recent results is the continued strength of Apple's iTunes business. This division represents nearly 8% of revenue and grew by 19% on a year-over-year basis. While Google's "other" business, which includes Google Play, grew revenue by nearly 100%, iTunes generates nearly four times the revenue of Google's "other" division.

Microsoft, on the other hand, has yet to divulge much about its Windows App Store. By most accounts, the main thing customers know about Windows Apps is there are far less than on iOS or Android.

Hand over fist
The fourth item investors may have missed is that Apple's massive jump in net cash and investments in just the last three months. The company reported more than $12 billion in additional net cash in the current quarter compared to its last earnings report.

While Google grew its net cash and investments by 25% on a year-over-year basis, Apple grew net cash and investments by 9% in just one quarter. The fact that Apple has more than twice the net cash and investments compared to Google makes this comparison astounding. Even more unbelievable is, Microsoft has a gross margin that is nearly double Apple's, yet the company's net cash and investments actually declined by about 2% year over year.

The bottom line is Apple's two most important products are finding stable pricing. When you combine this with the strength of iTunes, huge cash generation, and furious share repurchases, Apple's business is actually doing better than some might think.

The next big trend in tech is here, and you can profit
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Chad Henage owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers