Apple (US:AAPL) reported record quarterly profits through to the end of June, sending its shares on an upward trajectory following release. Despite the closure of a number of its physical stores, the tech giant posted an 11 per cent hike in Q3 sales. All five of its product categories saw growth: even iPhone revenues, which should have come under renewed pressure during the lockdown, were up 2 per cent to $26.4bn (£20.3m), thanks to the launch of a cheaper model in April.
Earnings per share rose 18 per cent to $2.58 - impressive given that Apple issued a revenue warning in mid-February. But the impact of coronavirus is still rippling through the global economy - how does Apple’s bumper performance fit into the wider macroeconomic picture?
Equity versus reality
US gross domestic product shrank at an annualised rate of 32.9 per cent in the second quarter of this year. Jobless claims continue to mount, with the number of people on unemployment benefits increasing by 867,000 to 17m in the week ended July 18.
It is true that Apple is not solely dependent on the American market - indeed, 60 per cent of its sales through the quarter were international. But the global macroeconomic outlook is equally as gloomy: Germany, the biggest European economy, reported a 10.1 per cent fall in gross domestic product in the last quarter — the sharpest fall since quarterly calculations began in 1970.
There is clearly, then, a widening disconnect between buoyant stock market valuations and a distinctly shaky global economic outlook. After all, Apple was not the only tech company that rallied at the end of last week: after their quarterly earnings, Facebook (US:FB) and Amazon’s (US:AMZN) shares were up 8.2 and 3.7 per cent, respectively.
The collapse in economic activity is particularly significant for consumer-facing companies such as Apple. Potential customers are less likely to commit to big-ticket purchases such as smartphones, tablets, and computers during a recession. It is hardly surprising that management has not offered any financial guidance for the rest of the year, despite the decent Q3 numbers.
But Apple has been diversifying: reported iPhone sales accounted for 70 per cent of sales in the first quarter of 2018 - last week that share stood at 44 per cent. In order to maintain revenue at existing levels, particularly as consumer sentiment deteriorates, Apple will need to continue its focus on identifying responsive price points. It will also need to drive engagement with its services, such as Apple Music and Apple TV, where the group competes with the likes of Spotify (US:SPOT) and Netflix (US:NFLX), the incumbent - though not unassailable - market leaders in music and television streaming.
