Apple Inc's Earnings: The Reports of Its Demise Were Greatly Exaggerated

Blowout quarterly results should put to rest the notion that Apple has lost its edge. Facebook reports good numbers too.

Apr 28, 2014 at 11:30AM

In spite of dire predictions from analysts, the financial media, and investors, things are OK at Apple (NASDAQ:AAPL).


Revenue and EPS increased from 2013 and handily beat the consensus from the analysts that normally follow the company. Apple indicated that its buyback program will be expanded by 50% to $90 billion, and the dividend will be increased by 8%. The company also offered positive guidance going forward, and in a surprise move, announced a 7-1 stock split. The moves were considered to be investor-friendly, and shares exploded by more than 8% the day after the conference call. 

The results should put to bed the notion that Apple is falling from its perch on top of the tech world. Although growth has slowed from the heady days when double-digit increases were the norm, there appears to be some life left at Apple, in spite of a perceived lack of innovation. Investors should continue to profit even while waiting for the next big thing.

Another tech giant, Facebook (NASDAQ:FB), also posted some good numbers. Revenue was up 72% and EPS nearly tripled. After a rough start during the IPO, things now seem to be going well for the social network. Facebook investors have a lot to look forward to.

The iPhone is still the star
Apple's MVP remains the iPhone, even seven years after it was released. Shipments of the iconic smartphone, which supplies more than half of the company's overall annual revenue, totaled more than 43 million in the quarter -- way above the estimates bandied about by those in the know. 

The company attributed the huge success to several factors, including the deal made with China Mobile, first-time buyers picking the iPhone over rival devices, including the top offering from Samsung, and users switching from phones powered by Google's Android operating system, which is tops in market share but not in profit.

Until the next-generation iPhone is released -- rumored to be later this year -- investors should be satisfied with returns generated from shipments of the currently available 4s, 5s, and 5c models, all of which posted good sales during the first three months of the year, according to Apple CEO Tim Cook.

The next big things
However good the results were, a new product category is needed if the company wants better growth.

Unconfirmed reports indicate that the company will dive into wearable technology and release a smart watch this year or next. Apple has reportedly been working on the concept for at least eight years, according to one report.   

Screen Shot

In addition, there might be some sort of mobile payment platform coming out of Cupertino. The company filed a patent earlier this year, and top executives have been meeting with retail companies. Based upon its success with iTunes and the App Store, an estimated $1 billion business, Apple could also do well processing purchases at brick-and-mortar stores. Apple will have to overcome concerns from retailers regarding the security of the platform. Late last year, several companies reported that hackers were able to steal information from customers after accessing debit and credit card payment systems. 

The elephant in the room would be an enhancement to Apple TV, which would likely include an agreement on content offerings with cable companies like Comcast. Apple's experience in the music industry with the iPod all those years ago might come in handy in the living room, too.

If any of the next big things take off, Apple investors can watch out for even better results.

Liking it in Menlo Park
According to Facebook COO Sheryl Sandberg, the social network's results can be traced to one big thing: growth in the mobile ad market. Users have transitioned from desktop to mobile in a big way, and the company has been successful in taking advantage of that trend.  

Facebook is not content to rest on its laurels. Despite a steady gain in users over the years, the company wants to increase its base even further by growing the number of people who have access to the Internet. Right now, around two-thirds of the world's population does not. Recently, Facebook acquired a maker of unmanned aerial systems, which could be used to provide wireless access to those in hard-to-reach places, which may tie into this strategy.

Facebook Q

The company has been very active in acquisitions, spending some of the cash flowing in from ads. Several companies have joined the Facebook family, probably in a bid to grow the user base. 

Facebook investors can also expect continued good results if the company is successful in its growth strategy.

Foolish conclusion
Mark Twain probably chuckled when he read newspaper accounts that proclaimed that he had died or was ill. He famously stated, "The reports of my death have been greatly exaggerated."

Apple investors were probably equally giddy to learn that things are really going well when the company announced recent quarterly results. It seems that the reports of Apple's demise were greatly exaggerated, too.  

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Mark Morelli owns shares of Apple. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. 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.

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