As one of the largest companies in the US stock market, $Apple (AAPL.US)$ has always been the focus of the market's attention, and its performance is even more critical.

Apple will announce its latest performance after the market closes on October 31. Every time the company releases its performance, it may also mean a good trading or investment opportunity. Before that, investors need to understand how to interpret its performance.

How should we interpret Apple's performance? Apple has always been a pivotal presence in the US stock market, operating very steadily. Although the latest performance changes may affect short-term stock prices, the impact on its long-term trend may not be significant. Therefore, we may need to focus on several key points in its performance from a long-term perspective. This mainly includes fundamentals, moats, growth points, and dividends.

1. Fundamentals

To focus on a company's long-term development, you first need to understand what its business foundation is. As long as the fundamentals are stable, the overall performance will not be poor, and the stock price will also have support.

Apple's fundamental foundation is undoubtedly its mobile business, including iPhone sales and market share. Why is that?

First, the revenue from iPhone sales accounts for over half of Apple's total revenue.

Second, the service business, accounting for about 20% of the revenue, is also based on the Apple ecosystem and App Store.

Third, Apple's wearable devices and other businesses penetrate based on its iPhone user base.

So, how do we assess the stability of Apple's iPhone business fundamentals? The key is to look at the trend of its market share changes. If the market share can maintain growth, it indicates an expansion of its fundamentals; otherwise, the business foundation is shaky.

In the Futu app, we can see the trend of Apple's iPhone market share changes. We can see significant changes between each quarter due to the timing of Apple's product releases, resulting in seasonal variations in sales.

We compare Apple's sales in the peak season of the fourth quarter each year. From Q4 2019 to Q4 2023, Apple's market share increased from 19% to 23%, showing continuous improvement in its iPhone business fundamentals.

However, with the resurgence of high-end models from Huawei and strong sales of Xiaomi's latest flagship phones, Apple's market share has been significantly impacted. Apple's global market share in 2024 Q1 was about 17%, a decrease of nearly 4 percentage points compared to the same period last year, which may have been a significant reason for Apple's stock price dropping over 10% in the first quarter.

Following this setback, Apple implemented price reduction policies and announced the integration of AI features in new models. These measures strengthened market expectations for Apple's future iPhone sales. After a substantial adjustment in its stock price, Apple rebounded strongly to set new highs. In Q3 2024, Apple's market share reached around 18%, showing an improvement compared to the same period last year. We will continue to monitor whether Apple can stabilize its market share and return to its former glory.

2. moat

The long-term competitiveness of a company depends on how deep its moat is. The deeper the moat, the greater the competitive barrier, the less competitive pressure, and the easier it is to maintain a long-term presence in the industry.

Many people believe that Apple is one of the companies with the deepest moat, its competitive barriers stem from the technological advantage brought by self-developed chips, as well as from the integrated software and hardware IOS ecosystem. What the moat of a company actually is, is a rather abstract concept, but in terms of performance, there is an indicator that can reflect it, which is the gross margin.

The stronger a company's competitive advantage, the stronger its bargaining power with customers and the higher its gross margin. Apple's gross margin in the hardware business represented by the iPhone has remained around 35% for most of the recent years, coupled with high gross margin software services, the overall gross margin is maintained at around 40%.

What concept is this? According to institutional statistics, in 2022, Apple, with 18% market share in smartphones, captured 85% of the industry's operating profit, making it a profit-making machine.

For observing Apple's moat and competitive advantages, we can also continuously track Apple's gross margin level. As long as the gross margin can be maintained at around 40% or even higher, it indicates that its moat may still be relatively solid. Otherwise, if the gross margin narrows, it may bring pressure on the stock price. Apple's gross margin in the previous 6 quarters has exceeded 44% and has maintained a slight increase, which may suggest that its moat is still relatively solid. We can continue to observe whether Apple's gross margin in the latest quarter can maintain a high level.

3. Growth Points

If Apple's foundation and moat are about defending the territory, then its potential growth is about conquering new territories.

In terms of existing hardware, Apple's growth potential is relatively limited. For example, in the mobile phone segment, except for the special circumstances in the 2021 fiscal year, Apple's mobile revenue has remained stable for most of the past few years.

Therefore, Apple's normal growth source mainly relies on service revenue, including commission revenue from the App Store, channel advertising revenue from Google, and subscription service revenue.

For a long time, Apple's service business revenue growth rate has been maintained at over 10%, sometimes exceeding 20%. The proportion in total revenue has also increased from less than 10% to around 20%. As of the first two quarters of the 2023 fiscal year, Apple's service business revenue growth rate has slowed significantly, with only a 6.4% year-on-year increase in Q1 of the 2023 fiscal year, further dropping to 5.5% in Q2 year-on-year.

However, starting from the 2023 Q3 fiscal quarter, Apple's service business revenue growth rate gradually stabilized and rebounded year-on-year. In the 2024 fiscal Q3 quarter, Apple's service revenue was approximately $24.2 billion, a 14.1% year-on-year increase, maintaining double-digit growth for four consecutive quarters. In the upcoming latest quarter, we need to observe whether its service business revenue growth rate can remain relatively high.

In addition to the existing growth points, Apple's future growth expectations also come from potential growth brought by new product lines, such as the VR headset Vision Pro released by Apple in the second half of 2023. However, the headset was not launched until early 2024, with its performance currently being average. We need to observe its subsequent version optimizations to see if it can become a new groundbreaking product.

4. Repurchase and Dividends

Before investing in a company, investors not only need to focus on its performance and competitiveness within the industry but also need to pay attention to how friendly the company is to its shareholders. So, how do we measure the company's level of concern for shareholders? The simplest and most direct way is to look at its repurchases and dividends.

Companies buying back shares can increase earnings per share, improve return on equity (ROE), and inject additional liquidity into the market, benefiting stock price increases significantly. On the other hand, dividends involve directly distributing the company's earnings to shareholders, both of which are ways to reward shareholders.

How to view buybacks and dividends in financial reports? The simplest way is to look at the cash flow statement.

In the financing activities cash flow section of Apple's cash flow statement, we can see that Apple's buyback amount has remained high every year, with the buyback amount in the 2023 fiscal year reaching approximately $77.55 billion, accumulating nearly $400 billion in net buybacks over the past 5 fiscal years, making it unparalleled in the US stock market.

In terms of dividends, Apple's overall dividends have increased slightly over the past five years, with total dividends exceeding $70 billion over the five-year period.

Due to the continuous high buybacks and dividends, Apple's net assets remain at a low level, resulting in a particularly high ROE, reaching 172.0% in the 2023 fiscal year.

Warren Buffett once said that in the long run, stock returns are consistent with a company's ROE. Apple's high ROE also increases its attractiveness to investors. Behind this, a large part is contributed by continuous buybacks and dividends.

Therefore, in every new performance report, we can focus on the buybacks and dividends for each quarter. As long as this data remains steadily increasing, it is a good sign and can provide a certain degree of long-term support to the stock price.

Having seen this, you may have some new insights on how to read Apple's performance. It is worth noting that for many star companies, each performance release may represent a rare trading opportunity for different types of investors.

For example, if an investor reads the past performance and combines it with the latest developments and feels that a company's latest performance will release some positive signals and be bullish for the short-term stock price, the investor may consider buying the underlying stock or buying call options.

On the other hand, if an investor believes that a company's latest performance will not be optimistic and will put pressure on the short-term stock price, the investor may consider short selling through margin trading or buying put options.

Of course, if an investor finds that the direction of a company's performance is unclear, but the stock price may experience significant fluctuations after the performance announcement, the investor may consider leveraging the volatility of its stock price and implement a straddle strategy by buying both call and put options to seize potential opportunities.

In conclusion:

First, for Apple's performance, the changes in the company's iPhone sales volume and market share are the foundation, the cornerstone of all business. If the foundation is unstable, it will not be conducive to its long-term stock price.

Second, the company's high level of gross margin is a concentrated manifestation of its moat. If the gross margin weakens, it may also create pressure on the stock price.

Third, the company's service business is an important growth point. We can focus on whether it can continue to maintain a high growth rate in the future.

Fourth, Apple's buyback and dividends are important support for the stock price. We can pay attention to the trend changes in this data.

Each time the company releases its performance, it may bring potential trading opportunities. Investors can consider suitable trading instruments based on their individual risk tolerance.