Apple's Remarkable Quarter Confirms Its Dominance

Apple has been marginalized lately but will it continue to reward its shareholders?

May 8, 2014 at 10:00AM

Apple (NASDAQ:AAPL) had a remarkable quarter as it reestablished itself as the preeminent smartphone maker in the world. Analysts were saying that Apple was losing market share to its competitors and losing its technological edge, but Apple does not just compete on those fronts. In fact, Apple holds only 15% of the global smartphone market based on units sold and it has always had a relatively small share there. In the U.S., Apple holds a 40% share of the smartphone market while Android phones from Google have 52%.

It's the premium prices Apple commands for its phones that make Apple such a great business and cash generator. The company captures 60% of the profits in the smartphone market through its high-margin strategy with only 40% of the U.S. market and 15% of the world market. This testifies to Apple's business model and the affinity for its smartphones in the U.S. and international markets.

Embracing technology without overdoing it
Although Apple integrates new technology into its phones such as the fingerprint sensor, its products are known more for user-friendliness and simplistic design -- Steve Jobs' credo. So the company has to maintain a technological edge, but it does not have to complicate its products with all of the latest sensors and capabilities that it can possibly integrate into them.

The future iPhone will likely have a bigger screen, a popular feature of competitors' phones, and rumors claim it contains weather sensors that detect temperature, humidity, and air pressure.The new phone is also believed to contain technologies that will help its users monitor their health through metrics such as blood pressure, oxygen levels, sleep quality, and blood sugar. All of the metrics will be synced through an app that the user can manipulate to gain insights.



Earnings and a treat for shareholders
Apple's most recent quarter was truly stellar as it increased iPhone sales 14% from the prior year's quarter. The company also increased its quarterly revenue and earnings per share to $45.6 billion and $11.62 per diluted share from $43.6 billion and $10.09 in last year's quarter, respectively. Apple's gross margin also expanded to 39.3% from 37.5% in the year-ago period.Apple's generous capital return program was evident in CFO Peter Oppenheimer's remarks from the earnings release:

We generated $13.5 billion in cash flow from operations and returned almost $21 billion in cash to shareholders through dividends and share repurchases during the March quarter. That brings cumulative payments under our capital return program to $66 billion.

Following the earnings, CEO Tim Cook announced that he is confident in the company's future and believes that the stock is undervalued. So Cook and Apple's board ramped up Apple's capital return program by increasing the share repurchase authorization to $90 billion from $60 billion and hiking the dividend 8% to $3.29 per share. In addition to the increased return of capital, the company's board also instituted a seven-for-one stock split, effectively increasing the liquidity of the stock and its appeal to smaller investors. The stock jumped over 8% after the news.

Apple for the future
Apple's innovative and user-friendly designs will afford the company continued success and loyalty from its die-hard users. Along with its envious financial position, Apple has the ability to wade through any ups or downs and come out on the other side with a hefty amount of cash. Even after the bump in the stock, Apple still trades at a low P/E multiple of 14 with a dividend yield of 2.3 percent. The company perennially generates returns on equity and capital north of 25% and enormous amounts of free cash flow, as it generated $44.5 billion just last year.

In addition, the stock has seen significant insider buying lately with over 200,000 shares acquired by Apple's board and management in the month of March. Investing along with company insiders is one of the smartest moves an investor can make and an opportunity exists in Apple to do so. Given its valuation, future, and financial success, Apple should prove to be a prudent investment choice and lead to good returns along the way.

Apple's next big thing is the biggest thing to come out of Silicon Valley in years
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.

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple and Google (C shares). 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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