Neil Cybart Neil Cybart

Apple’s 3Q24 in Three Charts

Hello everyone.

While recording the podcast episode for yesterday’s update, it occurred to me that one part of our discussion could have benefited from a bit more explanation. While such explanation was added to the podcast, which does routinely happen when episodes are recorded, to ensure everyone received the explanation, the following passage was from yesterday’s update:

“Back in 2019, [Warren] Buffett trimmed a very small part of Berkshire’s Apple stake. When asked why, Buffett didn’t actually provide an answer other than to say Berkshire’s overall stake in Apple continues to move higher due to Apple's buyback program.”

Since Apple is retiring the shares that it repurchases, the overall number of shares outstanding has been declining. This means that each remaining outstanding share is entitled to a larger share of Apple’s future cash flow (and business). If Berkshire didn’t buy or sell any additional AAPL shares, their stake in Apple would gradually rise thanks to Apple’s buyback program.

If we assume that Buffett cuts Berkshire's AAPL stake so that it’s slightly larger than the next largest equity holding (say $30B fair value at 140M shares), that would equate to 0.9% of Apple. Over time, assuming Apple continues to buy back shares and Berkshire doesn’t sell any more shares, that Apple ownership percentage will rise. The buyback is a major reason why Buffett finds AAPL shares attractive.

We will continue our Apple 3Q24 earnings review. Let's jump in.
 
Apple’s 3Q24 in Three Charts

Last Friday, we went over how Apple’s 3Q24 earnings compared to my expectations. Results came in close to my estimates. Nearly every line item beat (HW gross margin was the only thing that missed).

We also discussed the largest takeaway from earnings: iPhone fundamentals continue to gradually improve and are becoming less of a drag on Apple's overall ecosystem growth.

Turning our attention to secondary themes from earnings, there were three:

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