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Apple - record fourth quarter

Sophie Lund-Yates, Equity Analyst | 29 October 2021 | A A A
Apple - record fourth quarter

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Apple Inc Com Stk NPV

Sell: 174.16 | Buy: 174.18 | Change -0.40 (-0.23%)
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Total net sales rose 28.8% to $83.4bn - a fourth quarter record. This represented increases across both products and services. Operating profit rose to $23.8bn, compared to $14.8bn this time last year.

The board announced a dividend of $0.22 per share.

The shares fell 3.4% in pre-market trading.

View the latest Apple share price and how to deal

Our view

Despite enormous macroeconomic pressure, Apple's delivered a fourth quarter of record growth. Every single geography and product category has set a record. That's hard to do when the world is normal, let alone today. The incredible performance comes down to Apple's nail-on-the-head new product launches.

Hardware sales are critical, despite the group doing its best to peg itself as a Services company. iPhones alone make up almost 47% of net sales. Apple has to keep the upgrade cycle going if it wants to boost the more profitable services division in the long-term (more on that later).

The sales increase is testament to Apple's biggest asset - its brand. The sheer scale of Apple's sales is testament to the grip that the shiny embossed piece of fruit has on global consumers. The unbendingly loyal customer base means that there's an element of revenue visibility other businesses simply don't have.

The powerful brand should also help Apple stand strong in the face of rising inflation. Most big-ticket items are quickly rubbed off shopping lists as money loses its value, but there's an army of Apple fans who are likely to keep the next iPhone clearly in their sight.

Apple's looking to capitalise on its legions of fans with its Services business. The division seems to be turning a corner, and makes up a growing part of the total when compared to just before the pandemic struck. It makes money from charging subscriptions for its music service and getting fees from app developers to use the App store. Service margins are higher and revenues should be reliable - which all being well will take the pressure off the group to deliver constantly rising hardware sales in the future.

All of these strengths and another strong quarter might have you questioning why the share price reaction has been muted. There are a few reasons for this. The group's costs as a proportion of sales for its phones are increasing, suggesting it's getting harder to stay ahead of the competition. This is by no means a close race at the moment, but as a wider trend it's something to think about.

Compared to less hardware focused FAANG peers, Apple is also a lot more exposed to supply chain disruption. It's managed to navigate the problems fairly well, but hasn't escaped unscathed. If these issues persist it'll spell trouble, especially because the market is unforgiving when it comes to Apple's performance. Add in questions from some shareholders about forced labour and carbon footprint concerns and it becomes clear that while the Apple is still plenty good enough to eat, there's some potential for bruising.

Overall, we think Apple's core remains strong, but future spoils still rely on growing higher-margin areas of the business while also creating another generation of coveted products. Looking at the latest numbers it would seem so far, so good, on that angle. But remember there are no guarantees.

Apple key facts

  • Price/Earnings ratio: 26.7
  • Ten year average Price/Earnings ratio: 15.6
  • Prospective dividend yield (next 12 months): 0.6%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Fourth quarter results

There was a 29.8% rise in product sales, to $65.1bn. Within products, iPhones still make up the bulk of sales, accounting for $38.9bn and rising from $26.4bn. Mac sales rose 1.6% to $9.2bn, while iPad's were up 21.4% at $8.3bn. Wearables, Home and Accessories went from $7.9bn to $8.8bn.

Services made up $18.3bn of sales and rose 25.6%.

Every geography grew in the quarter, and this was most pronounced in Greater China were sales rose over 83% to $14.6bn.

Group operating expenses increased 14.9%, including a 16% rise in Research & Development costs.

Apple generated free cash flow of $93.0bn in the year as a whole, up from $73.4bn last year. Apple had net debt of $56.1bn at the end of September.

$24bn was returned to shareholders in the quarter.

Find out more about Apple shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.