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Apple Is No Longer the World's Most Valuable Company

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Here's why this might be a buying opportunity.

In 2020, Apple (AAPL 0.90%) became the first publicly traded company to achieve a $2 trillion valuation. But recently, the tech giant lost its crown as the world's most valuable company after releasing its fourth-quarter earnings report, and Microsoft took the top spot.

In this Backstage Pass video, which was recorded Oct. 29, 2021, Motley Fool contributor Billy Duberstein shares his thoughts on Apple's financial results, touching on the headwinds that may plague the company in the near term, as well as the tailwinds that could drive growth in the long term. Motley Fool contributor Brian Withers is also in the clip.

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Billy Duberstein: Apple is down 3.5% after hours. Of course, it was up 2.5% during regular scheduled hours, so down a little bit. Obviously that is due to a miss on revenue. Still up 29% year over year, which in normal times will be very good, but expectations were high. Earnings per share of $1.24 was about in line with expectations. That was up 70% over the year.

Again, this is a supply chain issue, as has been talked about by just every company that has complex supply chain. Apple, of course, is no exception. Their outlook still projected year over year growth for the December quarter. However, they told Reuters before their earnings call -- I just pick this up -- that they will sell about $6 billion less, short of their demands due to supply constraints.

In the quarter, their assembly plants in Asia were affected by COVID breakout there and while they have seemed to have corrected that and are back getting the throughput they need, now they have a trip shortage of certain components that go into their phones, obviously, there's a lot of semi-conductors that go into an iPhone or any Apple device both leading-edge and lagging-edge and there seems to be a big shortage of lagging-edge chips right now. That's the overall concern.

Highlights in the quarter, iPhone revenue missed, Mac revenue missed, iPad revenue beat expectations, wearables revenue missed, and services beat -- actually, services beat by quite a bit. That was very positive to see because obviously services are not dependent on the supply chain. To see services come in ahead of expectations means that the Apple brand and their products are still desired by customers. Might have also had to do with Ted Lasso sweeping the Emmys in September. Probably got a lot of sign-ups for Apple TV+ there.

As always, investors often look to the huge pile of cash that Apple has. It looks to be about $190.5 billion against a $124.7 billion in debt. Net cash comes out to about $66 billion. Obviously, management has always said they are trying to get to net cash-neutral overtime. They've been working that way down for the past few years. Still a huge amount. They still bought back a lot of shares during the quarter and pay their dividend. I wouldn't worry too much about this sell-off; it might actually be a buying opportunity in my mind. Because if it's a supply shortage, that demand will eventually get filled, barring any macroeconomic shocks or some hit to competition. As a long-term, Foolish investor, I really wouldn't worry about this. Maybe if it falls a lot, think about picking up some more shares.

That is really all I have to say. As you can see, the stock has lagged behind the overall market this year. Stock's not as cheap as it used to be, but if this sell-off gets any worse, might think about looking at it, and to keep an eye on the headlines around an easing of the supply shortage, which will probably happen next year.

Brian Withers: Billy, I appreciate you putting out the different segments and how they missed or the services and iPad beat and its potential that they just had more parts for the iPad. It could've been a supply constraint more than anything else of what did what.

I wouldn't say this for every company, but for Apple, if you have an Apple phone, you've probably gotten really used to it. You like it. If you can't get an iPhone now you'll just wait. Unless it's a cracked screen or whatever, those purchases can be put off. From Apple's perspective, missing some later, once the supply chain does catch up, it could be a really blow-out quarter for them. I think your point is quite right. I was going to ask whether you thought it was a buying opportunity.

Billy Duberstein: I think so I mean, the installed base just continues to grow even in light of this miss. The conference calls going on now. They usually give some color around the growth in android switchers over to Apple and their installed base. Profit didn't by this for one-quarter, certainly not when there's supply chain problems. He bought it for the brand and the financial strengths and the hardware and software engineering capabilities and all of that is still there. Outside beyond Apple in general, if company sells off a lot and it's a good tech company and management blames a supply chain it's probably the supply chain. There could be some interesting buying opportunities. This earning season beyond Apple.

Brian Withers: Absolutely.

Billy Duberstein: Certainly in semiconductors. If you think that this demand will eventually be fulfilled next year as these supply constraints ease, which for the high-quality companies, I would think that would be true and Apple's certainly one of those. Could be ugly this holiday season, people are scrambling to get stuff they can't get. Maybe do some Christmas shopping early.

Brian Withers: I was going to say it's entirely possible that Apple will sell out of its supply before the holiday.

Billy Duberstein: That is certainly a possibility. Maybe people who are giving iPhones as gifts might be difficult to execute this quarter, this holiday season, maybe go toward a gift card or something that can be retained later.

Brian Withers: Yes, the service revenue is doing really well. I think app sales and subscriptions on Apple's subscription are doing well.

Billy Duberstein: Yeah, that's really good to see because that's more of a recurring stream. As we all know, the Apple, iPhone, Mac can be somewhat cyclical, although it's been pretty steady the last few years. But services should continue to grow, especially as Apple gets into health and expanding payments, and Apple TV Plus and all the other stuff that they're rolling out. That was good to see and if it falls, I would consider maybe picking up some shares.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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