By Chand Bellur
July 31, 2020 at 6:28 p.m. PT
- Apple announced 2020 Q3 earnings above guidance and estimates, increasing revenues over the same quarter last year.
- A growth in service and product revenues produced these gains, according to Apple.
- With billions in offshore tax havens, the company can shift around profits to produce favorable results every quarter.
Apple Beats 2019 Q3 Quarterly Results
Apple announced increased revenues for Q3 of 2020. The company grew product revenues by over $4 billion while services increased by almost $2 billion.
Apple didn’t provide specific sales or subscription numbers around product and service revenues. Aside from claiming record high device activations, sales figures went unmentioned. Bloomberg earlier revealed estimates of stagnant iPhone sales and lackluster subscription numbers for services.
Although the iPhone SE refresh proved to be popular, analyst Ming-Chi Kuo believes iPhone sales are down 20% – 25% compared to the same period last year. Given economic conditions, this seems rational. The world is currently facing financial hardships that affect consumers and corporations alike.
News of Apple’s unexpectedly high earnings sent shares soaring. Apple hit an all-time high of $425.48 today, closing at $425.04. Investors seem pleased with the news, as Apple stock retains its status as a solid investment.
Creative International Accounting Boosts Apple’s Outlook
Apple, like many large, multinational corporations, holds profits in offshore tax shelters. When the U.S. corporate tax rate was 35%, most of this money resided offshore. After the Trump administration lowered the rate to 21%, companies repatriated funds, which are used mostly for repurchasing their own shares.
Jim Cramer may be doing cartwheels over Apple’s quarterly report; however, he neglects to see the big picture. Apple will always do better than the next quarter. It’s merely a question of repatriating more cash and claiming more significant revenues. It’s not as rigged as professional wrestling, but it’s definitely misleading.
Apple’s revenues and profits are whatever they want them to be. With massive overseas hordes of cash, the company can create quarterly reports that always beat expectations. It’s like the sports team that never loses because they’re allowed to use reserved points at the end of the game.
Stock Repurchashing Improves Earnings Per Share
Apple’s quarterly reports reveal a significant growth in earnings per share. The company managed to increase EPS by over forty cents per share.
Stock buybacks have a lot to do with Apple’s high EPS. When companies repatriate overseas funds and repurchase shares, the resulting fewer outstanding shares produce a higher EPS.
Overall, Apple’s quarterly results are too good to be true. Given economic circumstances, declines in device sales and lackluster subscriptions, the report is most likely the result of creative accounting.
The corporations and politicians win, as they create the illusion of economic prosperity. No one knows when the reckoning will come. For now, few question Apple’s success. With so many investors relying on the popular stock, few want to see the naked emperor.