Apple profit grows more slowly; stock split, buyback juicy news
Though Apple continues to generate lots of profit, the increase was still small compared with the tremendous profit growth the company had even just a couple of years ago.
The New York Times
Apple’s remarkable growth streak — now more than a decade old — is starting to show its age.
Apple reported Wednesday that its quarterly revenue climbed 5 percent, to $45.6 billion, from $43.6 billion a year earlier.
The company continues to generate lots of profit. Apple’s earnings were $10.2 billion, up from $9.5 billion a year ago. But the increase was still small compared with the tremendous profit growth of even just a couple years ago.
The latest results are almost certain to put pressure on CEO Tim Cook to release products in new categories — perhaps with a smartwatch or even an Apple television.
On Wednesday, Apple used other means to please investors.
The company said it would buy $30 billion of its stock on top of the $60 billion it announced last year. It also raised its quarterly dividend by 8 percent and said it would split its stock.
The company will execute an unusual 7-1 stock split in early June.
The move will dramatically decrease the nominal value of Apple’s stock, though the total value shouldn’t change from the split, which afterward would be about $75 each share based on Wednesday’s close at $524.75.
In after-hours trading, Apple’s shares rose 8 percent.
In a call with analysts, Cook said the increased buyback was “a signal of the board and management team’s strong confidence in the future of Apple.”
The company sold 43.7 million iPhones, up from 37.4 million last year. But sales of its iPads, at 16.35 million, were slightly down, from 19.5 million last year, despite a major redesign for the bigger tablet introduced in the fall.
It was almost certain that Apple’s stratospheric rise, largely on the back of the iPhone, would plateau.
“If Apple grew the next five years like it did the previous five years, it would be approaching the GDP of Australia,” said Toni Sacconaghi, an analyst for Sanford C. Bernstein & Co.
“Psychologically, it’s more the issue that here is this incredibly highflying company two years ago growing at 50 percent or more,” he said. “And now, at least in this given quarter, it’s basically not growing.”
Apple’s profit was slightly above the expectations of Wall Street analysts. They had expected revenue of $43.5 billion, according to a survey of analysts by Thomson Reuters.
The big question that hovers over the company is whether it can maintain even modest growth. For years, Apple has blazed new tech trails with its iPhone and iPads. But analysts and investors wonder whether the company has already peaked.
IPad sales are slowing down much faster than many expected. Apple sold about 3 million fewer iPads in the last quarter than it did in the same period last year.
That may be because many tablets that cost half as much as an iPad, like Amazon’s Kindle Fire, have improved so much in quality, said Tero Kuittinen, managing director at Frank N. Magid Associates, a strategic-consulting firm.
Apple had modest growth from iPhone sales, selling about 6 million more over the quarter than it did in the same period last year.
Its recent partnership with China Mobile, the largest phone carrier in the world, most likely helped sales.
But a potential problem for Apple is that smartphone sales are slowing down industrywide, notably in China. Sales there are expected to grow only 20 percent this year, compared with 60 percent in 2013, according to IDC, the research firm.
Apple’s first split in nine years removes an obstacle to its inclusion in the Dow Jones industrial average: its $525 stock price.
The iPhone maker will exchange seven shares for each that is held on June 2, a move that if enacted at Wednesday’s closing price would lower its shares to about $75 apiece.
Previously, the stock traded for so much that putting it in the Dow would have given Apple too much influence in the 118-year-old equity gauge, which ranks companies by the level of their shares rather than market value.
Apple’s exclusion highlights idiosyncrasies in the Dow methodology that leave some of the world’s biggest companies out of one of the best-known stock measures.
“I’d think Apple is up next,” said Richard Moroney, editor of the Dow Theory Forecasts newsletter, in a phone interview.
“Really the only barrier keeping Apple out of the Dow was that high price tag. It’s the biggest company, it’s clearly a quality company with a long record of success and it’s the leader in its industry — all things the keepers of the Dow Jones industrial average look for.”
Material from The Associated Press and Bloomberg News is included in this report.