Apple [finance:Apple Inc.] has become one of the world's highest market cap tech giants not just because the iPhone sells well, but because it has mastered Capital Allocation to the extreme. This article combines financial data with Buffett's investment logic to deeply analyze Apple's financial performance, growth drivers, and the truth behind its hundred-billion-dollar buyback program.
1. Financial Performance: Steady Growth and High Profitability
As of FY25 Q2 (March 29, 2025), Apple demonstrated strong business resilience and profitability [web:5]:
- Steady Revenue Growth: Quarterly total sales reached $95.36 billion, up approximately 5% year-over-year, demonstrating the company's continuous business expansion capability.
- High Gross Margin Maintained: Quarterly gross profit was $44.87 billion, with an overall gross margin of 47.1%.
- Product Gross Margin: Slightly declined to 35.9%, primarily affected by product mix adjustments and US dollar appreciation.
- Services Gross Margin: Outstanding performance at 75.7% (compared to 74.6% in the prior year), reflecting the high profitability from services business growth.
- Strong Operating Profit: Operating profit was $29.59 billion with an operating margin of 31.0%, demonstrating excellent operational efficiency and cost control.
- Exceptional Net Profit: Net profit was $24.78 billion with a net margin of 26.0%, further solidifying its position as a highly profitable tech giant.
2. Growth Drivers: Dual Engines of Services and Hardware
Apple's revenue growth no longer relies solely on iPhone but shows diversified momentum:
Revenue Growth by Product
- iPhone (+2%): Benefiting from strong demand for Pro models.
- Mac (+7%): Driven by new laptops and desktops.
- iPad (+15%): iPad Air performed strongly, driving double-digit growth.
- Services (+12%): Driven by advertising, App Store, and cloud services, becoming the core engine of profit growth.
- Wearables (-5%): Experienced a slight decline.
Revenue Growth by Region
- Americas, Japan, Rest of Asia Pacific: Grew 8%, 17%, and 8% respectively, primarily driven by iPhone and services.
- Europe: Flat.
- Greater China: Declined 2% due to reduced iPhone sales, with growth in multiple regions affected by exchange rates.
3. Cash Flow and Capital Returns: The Truth Behind Hundred-Billion Buybacks
Apple's FY24 operating cash flow was strong at 120 billion for the year.
Why Does Apple Prefer Buybacks Over All Dividends?
Buybacks are more "flexible and efficient" than dividends or reinvestment.
| Comparison | Buybacks | Dividends |
|---|---|---|
| Benefit to Investors | Increases earnings per share (EPS), stock price may rise | Direct cash receipt |
| Tax Efficiency | Investors only pay taxes when selling (tax deferral) | Dividends taxed immediately (capital gains/dividend tax) |
| Management Flexibility | Buybacks can be paused or adjusted anytime | Once dividends start, pausing sends negative market signals |
| Impact on Company Valuation | Seen as a signal of "confidence in the company" | Dividends seen as a sign of "lack of growth" |
Buffett once said: "Smart buybacks are a great kindness to shareholders."
Why Not Use Everything for R&D or Business Expansion?
Because Apple is already one of the most profitable companies globally, and with a basically saturated market, the marginal returns on new investment opportunities are relatively low. Facing over $100 billion in free cash flow in FY2024, Apple's allocation logic is as follows:
- Retain a Portion: For capital expenditures (such as Apple Silicon, in-house chips, Vision Pro, etc.), approximately $10-12 billion annually.
- Dividends: Steadily increased annually to reward long-term shareholders, approximately $14 billion annually.
- Buybacks: Increase per-share value, optimize capital structure, approximately $80-90 billion annually (6-7 times dividends).
4. Long-term Impact: ROE and Buffett's "Easy Win"
Apple's ROE (Return on Equity) continues to maintain very high levels (reaching 157% in FY24), benefiting from its strong profitability and continued large-scale buyback strategy.
- Continuous Decline in Outstanding Shares: From 16.98 billion shares in FY20 to 15.12 billion shares in FY24.
- EPS Growth: Even if profits don't increase, EPS naturally rises due to reduced share count, thereby boosting stock price.
- Passive Increase in Shareholder Ownership: With total shares decreasing, each shareholder's "company ownership" increases, which is also Buffett's most valued point—without investing a single cent, ownership percentage increases year by year.
5. Moat: Irreplicable Barriers
Apple dares to reward shareholders through buybacks because it has a strong moat behind it:
- Extremely Strong Brand Power: Users would rather give up their car than their iPhone, with extremely high brand loyalty.
- Closed Ecosystem: iPhone, Mac, Watch, iCloud, etc. form a complete closed loop—the more users engage, the harder it is to leave.
- High User Stickiness: High repurchase rate + App Store subscription services form a continuous stable cash flow.
- Consumer Product Attributes: Buffett specifically calls Apple the "world's strongest consumer brand"—it relies not just on technology, but on users' mental barriers.
Note: This article is for educational reference only and does not constitute investment advice.