Wall Street is buzzing about Big Apple – not The Big Apple as in New York City, but Big Apple as in the mega-tech giant. On August 2, Apple became the first company ever to record a market cap of over $1.0 trillion.
This feat is tremendous. For perspective, an investment of $990 on Apple’s initial public offering (IPO) back in December of 1980 would amount to an incredible $521,740.80 today after stock splits, not counting dividends. Talk about a payday. And things continue to look promising. Apple’s third-quarter revenue was up 17% from the same period last year.
If you’re wondering what’s powering this growth, it’s helpful to look more closely at Apple’s most recent quarterly year-over-year activity.
Apple’s ancillary products – AirPods, Apple TV, Apple Watch, Beats, HomePod, and others – are the fastest growing segment of the company, clocking in at 37%, or $3.7 billion in the third quarter. Services like digital content, AppleCare, Apple Pay, etc., are next in line at 31%, or $9.6 billion. Then there is the stalwart iPhone, which grew 20%, or $29.9 billion. And rounding out the third quarter were the iPad and Mac segments, which both declined 5% this quarter, ending with revenues of $4.7 billion and $5.3 billion, respectively.
Looking back to 1976, when Apple was founded, it’s hard to imagine Steve Jobs, Steve Wozniak, and Ronald Wayne could ever have dreamed how successful the company would eventually become. Indeed, Wayne, the oft-forgotten co-founder, parted with his shares in the company after just a year – for $800. At the time, he owned only a 10% stake, but today, that piece of the pie would be worth tens of billions of dollars. Ouch.
So, what’s next for this rocketing tech superstar? No one knows for sure, but the estimates are favorable (to say the least) even after the trillion-dollar milestone.
Projections for the remainder of this year include revenue growth of 14.7%; earnings per share (EPS) growth of 27.3%; price-earnings ratio (P/E) of 18.4x; P/E adjusted for cash of 16.1x; and a free cash flow yield of 7.1%.
For 2019, forecasters are calling for more of the same, with a slight throttle back: revenue growth of 4.8%; earnings per share (EPS) growth of 15.2%; price-earnings ratio (P/E) of 16.0x; P/E adjusted for cash of 13.9x; and a free cash flow yield of 7.2%.
As for dividends, the yield is okay-ish, but it’s currently growing at a rate of between 10% – 15%. Also adding to shareholder yield are stock buybacks, which are now coming in at around $30 billion per year, or about 3%.
The bottom line is that Apple is thriving, and appears to be positioned to do more of the same. But, to be clear, I’m no Jim Cramer; this analysis and conversation about Apple is not my version of jumping up and down and recommending a stock. Instead, I’m simply reporting on a giant company that just made headlines.
Personally, I’m cautiously optimistic – Apple’s size can be both a blessing and a curse over the long haul. While it continues to grow despite its hefty numbers, nothing is too big to fail. (We learned that lesson already, right?) But for now, its continued growth traction has given the company a well-deserved place in the financial news spotlight – and place in the pantheon of truly great businesses.
