From time to time, a stock is worth buying even at an all-time high. This may be the case for Apple (NASDAQ:AAPL). The company's fiscal third-quarter results, released last week, are arguably a game changer, making the stock a better long-term bet than it seemed to be before the earnings report.
Here's why investors might want to take a closer look at Apple stock.
Image source: Getty Images.
Broad-based growth captures Apple's resilience
A brief review of Apple's fiscal third-quarter results quickly shows why investors piled into the stock following the earnings release. Not only did Apple crush analysts' estimates, reporting 11% revenue growth when the consensus forecast was for sales to decline 3% year over year, but growth in the tech company's business was broad-based. This was an impressive feat for a quarter jam-packed with challenges and uncertainty -- namely, store closures and a weak global economy. Revenue in both the products and services businesses grew by double-digit rates year over year, climbing 10% and 15%, respectively. Getting more granular, every product segment except iPhone saw strong, double-digit growth during the period.
|
Product |
Q3 2020 |
Q3 2019 |
Change |
|---|---|---|---|
|
iPhone |
$26.4 billion |
$26.0 billion |
2% |
|
Mac |
$7.1 billion |
$5.8 billion |
22% |
|
iPad |
$6.6 billion |
$5.0 billion |
31% |
|
Wearables, home, and accessories |
$6.5 billion |
$5.5 billion |
17% |
|
Services |
$13.2 billion |
$11.5 billion |
15% |
Fiscal quarters shown. Data source: Apple quarterly earnings release.
Even this review of Apple's robust product segment performance understates the company's diversified momentum. Apple's revenue also rose on a year-over-year basis across each of the company's five geographic segments.
This broad-based growth highlights the resilience of Apple's business model during a time when many businesses are struggling.
Apple products are more relevant than ever
The COVID-19 pandemic has demonstrated the relevance of Apple's products. Apple devices have become central to modern communication and entertainment, foundational in education, and mission-critical for businesses. This is especially the case now that people have been sheltering at home, relying on technology to cope with these unusual times.
It makes sense that people all around the world are turning to Apple products during a pandemic. When social distancing measures are making people more reliant on their internet-connected devices, customer satisfaction factors more than ever into consumers' buying decisions -- and Apple has always done well on this front, helped by its relentless focus on the user experience.
During Apple's fiscal Q3 earnings call, CFO Luca Maestri noted that the iPad and iMac, specifically, are proving "extremely relevant products in the new working and learning environments," leading to 31% and 22% year-over-year revenue growth rates in their respective segments. This strong performance has been helped by high customer satisfaction ratings, Maestri noted. According to 451 Research, a product research firm, the latest Mac and iPad customer satisfaction scores are at 96% and 97%, respectively.
Consider these significant catalysts
Finally, investors shouldn't forget the two catalysts that have been exciting investors for the past several years: services and wearables. Both continued to fuel significant growth for Apple.
Services revenue increased 15% year over year in fiscal Q3, and its gross profit accounted for 39% of the company's total gross profit, thanks to its lucrative gross profit margin of 67% during the period.
AirPods Pro. Image source: Apple.
Meanwhile, Apple's wearables, home, and accessories segment saw decelerated growth during the quarter since the Apple Watch, in particular, was negatively impacted by store closures. But revenue in the segment still managed to increase 17% year over year.
Apple's broad-based momentum during an uncertain time, its products' increased relevance, and promising prospects for the tech giant's services and wearables segments show why the stock remains a good long-term bet for investors.
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August 04, 2020 at 08:06PM
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