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Apple's most comprehensive financial valuation


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Integral service around a transaction
BY : Diego GutiérrezFebruary Mon, 2019

Silicon Valley seems to be starting to shake. Apple's share prices have been in turbulence since it warned that it would stop sharing information on the number of the company's flagship iPhones sold after disappointing markets in 2018.

Is this news alarming, or is Apple well positioned to continue growing in the future and it is all due to a cyclical problem? In the next post we will analyse the key variables to understand the company's valuation and how it is positioned for the future.

Financial analysis of Apple

In the following tables we have summarised Apple's most relevant data regarding company valuation is concerned. We can see how sales have grown significantly in 2018, which efficiency of the company, as measured by the EBITDA/Sales ratio. has remained constant and that the ROE (calculated based on book value, not markets) has grown considerably.

This growth in ROE is due not only to the fact that net profit has grown, but also to the fact that there has been a fairly large share buyback plan for subsequent redemption, thanks to which the company has been able to buy back its shares, earnings per share (EPS) grew by 29.321TP1Q to reach 1TP2Q11.91 per share in 2018.

Financial valuation of Apple

Fixed assets during the period 2018 have been reduced, largely due to an increase of growth in depreciation for the yearHowever, this is only temporary, as the company plans to invest in new sectors and grow in size, with a strategic plan to diversify its business units, with a possible entry into the streaming sector via acquisition.

With regard to current assets, there is a clear trend towards the reduction of stock levelsThe market is expected to be more stable, due to lower sales expectations.

The most important thing to note about the asset, however, is the large amount of available cash Apple enjoys, which, in the absence of a large share buyback plan as in 2018, is expected to be used to achieve large inorganic growth that will improve its position in growth lines such as the cloud computing, streaming or consultancy or implementation services.

Lastly, I should mention that the operating working capital remains fairly constant, which is a good sign considering the situation of sales growth and the slowdown in sales in its main business lines.

All in all, we can see that Apple is doing quite well financially, although it has not been able to meet expectations in 2018, given the company's overall business and plans to expand into high-growth sectors, the company's long-term prospects remain promisingIt is also more stable as it does not depend so heavily on the sale of technological terminals.

Sales and billing of iPhones

Up until now, iPhones have been the company's flagship product in terms of turnover, thanks to which it has been able to expand and generate the most profits, but since 2015, this situation of prosperity has been threatened by a number of factors and in 2018 it missed its target of increasing sales of iPhones by 7.5%, which is why it has been punished in the stock markets.

iPhone sales appear to be stagnant, and in certain geographies such as China, sales are declining, with 2.5 million fewer units sold in 2018 in the Asian country.

In addition, Apple's decision to no longer provide data on the number of iPhones sold from 2019 has caused a stir, weighing possible falls during this period.

In the following graph we have analysed the trajectory of sales of iPhones worldwide, as can be seen Apple has not managed to recover the sales levels of 2015, in 2018 there has been a clear stagnation, and as mentioned above in 2019 it seems that there may be.

The only positive thing that can be taken from it is that the net turnover from the sale of iPhones has continued to grow, largely due to price increases on the new models.

Apple's most comprehensive financial valuation

This is why Apple's business model is being adapted and focusing on other products in the portfolio that previously accounted for a smaller amount of revenue, as well as starting to look more at complementary services to boost the company's revenues.

 

Apple Quote

In the summer of 2018 Apple managed to be the first company to achieve a market capitalisation of $1 trillion ($1tn)The company's earnings in the first quarters of the year and the good expectations of the company, even higher than what was speculated at the beginning of the year, reaching 223 dollars per share.

However, the last quarter was rather catastrophicThe company's stock market performance was well below market expectations, breaking this record and dilapidating its stock market value due to the poor performance of the Asian and developing markets, mainly due to economic crises and political tensions that weighed on the company's sales.

In order to see the trend of Apple's share price, we have decided to use the share price data of 31 January, which is the data obtained after the release of the financial results for the first quarter of the year.

Apple's most comprehensive financial valuation

If we take a closer look, we can see that there is a very high correlation between the variations in the share price and the number of iPhones expected to be sold during the same year (which from 2014 to 2017 was met and even exceeded).

As can be seen, in 2018 iPhone sales expectations were very high, which is why the share price soared at the beginning of the year. However, as the consolidated financial report at the end of the year showed, these estimates had been too optimistic, causing the share price to fall from $219 to 180$ in November 2018, a figure that in the following months maintained a slightly downward trend.

Finally, with an eye on continued growth in 2019, Apple has begun to drive revenue in other technology tools such as Apple Watch, iPad or Macs, and cloud servicesThe EU is seeking to better diversify revenue sources and decrease dependence on iPhones.

Following the results of the first fiscal quarter, published on 31/01/2019, it appears that these efforts are beginning to bear fruit, having already achieved that the share has risen by over 10%The company has managed to reach the levels of early 2018, thanks to growth in services such as Apple Play, where revenue has doubled, and iCloud, where revenue has grown by more than 401Tbp1T.

Conclusions

Apple looks set to start being more opaque about financial data in the future to avoid the problems it has had to deal with in 2018 for failure to meet market expectations.

Moreover, it seems clear that the company's growth is going to come from other business lines other than the iPhone, although it is true that in the coming years it will continue to be the main source of revenue. It is expected to reduce its dependence and focus on lines with higher growth such as cloud services, streaming or other products that have been less important until now, such as Macs or iPods.

Finally, it appears to be clear that Apple intends to encourage the purchase of companies The European Commission has also set up a number of companies that can boost these sectors in the short term, for which they have a large amount of liquidity.

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