Given the challenging environment, which includes economic uncertainty, high inflation, and rising interest rates, it isn't a stretch to say people are finding ways to spend less. A recent survey of more than 9,000 consumers found that 69% of respondents planned to cut back on nonessential spending, with 15% planning to eliminate nonessential spending altogether, according to a study by PwC.
Investors have been concerned about the potential implications for Apple (AAPL 0.51%). After all, the company's high-end goods are considered by many to be a luxury, as the average price of an iPhone reached $988 last quarter, according to research firm CIRP.
Yet Apple's results yesterday showed the enduring demand for the iPhone, which helped backstop the company's performance amid challenging conditions.
Image source: Apple.
Demand is strong despite headwinds
For its fiscal second quarter (ended April 1), Apple generated revenue of $94.8 billion and while that was down 3% year over year, it was well ahead of analysts' consensus estimates of $92.9 billion. The key driver of the strong topline performance was iPhone revenue of $51.3 billion -- a record for the March quarter.
Apple's flagship device generated revenue that was well ahead of expectations, as Wall Street had forecast iPhone sales of $48.7 billion. The iPhone continues to be the backbone of Apple's business, accounting for 54% of total sales during the quarter.
Perhaps as importantly, strong pricing power helped Apple deliver robust profits as well, with earnings per share (EPS) of $1.52 unchanged compared to the prior-year quarter, even as revenue edged lower. This was also markedly better than the $1.43 market watchers expected.
Another headliner was services, a recurring revenue stream that Apple has been curating for the past several years -- fueled by the growing number of iPhones currently in use. Services revenue of $20.9 billion hit an all-time record, accounting for 22% of sales, also demonstrating resilience in the face of headwinds.
Demand for the Mac didn't hold up as well, with sales of $7.2 billion falling 31%. The appetite for the iPad was similarly strained, with sales of $6.7 billion down about 13%.
In typical Apple fashion, and without providing any specifics, CEO Tim Cook dropped this nugget: "We are pleased to ... have our installed base of active devices reach an all-time high." While the company was mum as to the number of devices, we know it's higher than the 2 billion active devices it announced just last quarter. Services continued to generate strong growth -- and part of that is a function of the growing number of devices fueling that demand.
Shareholders rejoice
Strong sales and cost discipline give Apple the resources to continue its tradition of shareholder-friendly practices -- which was on full display.
Apple's board of directors declared a cash dividend of $0.24 per share, an increase of 4%. This marks the eleventh consecutive increase since Apple reinstituted its payout back in 2012. The payout began at a split-adjusted rate of roughly $0.095, increasing by an impressive 153% since inception. While the yield appears low at just 0.55%, that's a function of Apple's spectacular growth (more on that in a minute).
The company isn't stopping there. Given Apple's strong operating cash flow of $28.6 billion, the board has also authorized an additional $90 billion stock buyback, which will increase the proportion of profits allocated to each share -- further enriching Apple investors.
Remarkable value
Apple continues to buck the broader market trend, with its stock down just 9% from its peak reached in early 2022. Yet considering its resilience, Apple stock is still a solid value, selling for just 28 times earnings, compared to a price-to-earnings ratio of 24 for the S&P 500.
While that's slightly more expensive, consider this: over the past decade, Apple stock has gained 929%, and generated total gains of 1,110% when factoring in the dividend. Comparing that to the S&P's total return of 207% during the same period, helps illustrate not only that Apple's premium is well-deserved, but also what a compelling buy the stock is at this price.
