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Apple’s 2024 Worldwide Developers Conference (WWDC) is currently underway and all eyes rest on the company’s announcements to discern if new edges are being carved into its devices and services. There is ample good reason for this: as it stands, the company’s growth is showing signs of stagnation.
Trend AnalysisRelative to past full Financial Years (“FYs” which end in September), the first six months of the company’s current Financial Year might seem to some as being positive.
Source: Company Information; Leverage Shares analysis
If current trends continue, net sales would end about 10-20% above that seen in FY 2023. Cost of sales are expected to rise by a nearly commensurate amount, as so do both Net Income as well as diluted Earnings Per Share (EPS). This is a welcome change from Year-on-Year (YoY) trends in the past year, which was in a downtrend, but nowhere close to the massive boost in virtually every key line item seen in FY 2021.
When considering the distribution of key line items between products and services, signs of stagnation become a little more apparent.
Source: Company Information; Leverage Shares analysis
Apple’s products and services have maintained an 80:20 split in revenues fairly consistently over the past four FYs and seem poised to do so in the current year as well. This consistency is also reflected in the 90:10 split in the cost of sales. Since FY 2023, R&D expenses have been trending around 5% higher than before and this seems to continue into the current FY as well (at least, so far).
An important risk factor is seen in the geographical distribution of sales. In FY 2020, the Americas accounted for almost half of all sales. This has steadily been whittled down to the 40% mark while China has become increasingly more important for the company at the 25% contribution mark. Given that China is reportedly under increasing economic stress that’s beginning to affect personal consumption, this might be considered a weakness. However, similar headwinds have raised likelihoods of a similar risk in the U.S. and Western Europe as well.
iPhone sales have become increasingly more important for the company’s bottomline by going from 62% to 69% in the first half of the company’s current FY. Contributions from Mac and iPad sales have steadily declined in importance while wearables and home electronics have held steady. The data suggests that the correlation between iPhone purchases and “upsells” in wearables and accessories is holding strong. However, the company is steadily transitioning from an American “tech” company into an American “smartphone” company.
Another factor that has remained fairly strong over the past few years is that unit sales have a slight downtrend. Rising sales in dollar terms is largely attributable to new models being consistently priced above previous models. This creates a limitation in the company’s total addressable market without really paring down the competition: iPhones often find themselves compared rather unfavourably against similar products from Samsung and Google’s Pixel division in terms of performance and features. What prevents a further slide in unit sales is the company’s strong recognition as a “premium” brand. While this might coax devoted brand fans into staying on, it doesn’t translate very well into converting new customers.
This is where Apple’s annual WWDC events becomes key. This year’s WWDC started on the 10th of June and will run till the 14th.
WWDC So Far and ExpectationsOn the first day of this year’s WWDC, the new features unveiled could best be described as “interesting” to Apple’s fans and “run of the mill” for those not particularly invested into Apple products: Apple’s operating system iOS 18 – expected to debut in Fall this year – promises a host of aesthetic improvements. Various upgrades in the operating systems for the company’s Mac, iPad, smartwatch, headset and TV also promise a host of software-driven user experience and ease enhancements. Overall, these features tend to close the gap with Android- and Windows-driven devices (which also tend to be cheaper) without necessarily surpassing the best-in-class on all fronts.
Day 1 of Apple’s WWDC 2024 also was the momentous announcement of Apple Intelligence, a suite of AI-enabled services designed to improve user experience in letter drafting, generating art and so forth. The generative AI aspect of image creation isn’t expected to surpass Midjourney but will likely be in direct competition with Meta’s MetaAI. A large portion of this upgrade has been made possible by a partnership with OpenAI whose GPT-4o (launched in May) was essentially meant to demonstrate how ChatGPT could be integrated with Siri1. ChatGPT functionality is expected to increase in depth and service offering as time passes.
A common theme that’s visible so far is the company’s singular focus on individual consumers, which is a potential weakness. In the world of consumer electronics, it’s a buyer’s market and consumers are spoilt for choice along cost, features and even performance. As previous articles about Nvidia2 and AMD3 indicated, Apple’s fellow tech peers essentially transformed their bottomlines by increasingly orienting towards corporate spends on datacenters. For the past several years, Apple has reportedly been working with Taiwan’s TSMC – the foundry partner for both Nvidia and AMD – to develop its own chips under “Project ACDC”4 that would be designed to run artificial intelligence software in datacenter servers. While there isn’t any substantial indication that there will be an unveiling or update on Project ACDC in WWDC 2024, the deployment of corporate solutions would be a game changer for the company’s prospects and forward outlook.
All in all, WWDC 2024 so far has been interesting in highlighting Apple’s continued evolution but it doesn’t really showcase any substantial shift in company strategy. While the new M4 chip expected to be deployed in its upcoming devices is better suited for a number of AI-related tasks by users – particularly in the iPad’s OS – this also means that the unit price can be expected to inch even higher. A higher price implies fewer units sold while largely holding net revenues at a net positive. This positive is, however, a false positive; widespread inroads into the AI space cannot be expected without substantial hardware announcements and a change in strategy. Despite the presently-low likelihood, it will be a massive deal if any substantial announcements about “Project ACDC” were made by Apple in the course of this year’s conference.
Professional investors interested in making a tactical play on Apple’s stock trajectory can consider AAP3 or AAPS, which offer leveraged daily-rebalanced exposure to the upside and downside of the stock’s trajectory respectively.Footnotes:
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If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
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