Annual shareholder events tend to be uneventful, with the exception of the Q&A session. This year, Apple fielded 17 questions, six of which we deemed noteworthy. The bottom line is the company remains in a favorable position to continue to capitalize on the accelerating digital transformation. Despite the recent market pullback, our long-term $200 view on shares of AAPL remains unchanged.
Here are the key questions and our takeaways:
“What are the ways in which Apple is diversifying its supply chain?”
Apple’s response: The company had little to say with the exception of reiterating its commitment to contribute $350B to the US economy.
Our takeaway: Absent was any language about diversifying the supply chain away from China. While other countries will play a bigger role down the road, the shift away from China will move at glacial speed.
Regarding M&A, “Are there any acquisitions in the future?”
Apple’s response: Cook noted that they made about 80 acquisitions through the 2015 and 2016 period, and from 2017-present they’ve made 17 acquisitions.
Our takeaway: Of course they’re not going to answer this question. Regarding historical M&A, not all acquisitions are created equal, so there are limited insights from the step down in M&A pace. Our takeaway is Apple likely feels confident with internal innovation. We don’t see any mega acquisitions as likely over the next few years.
“Are you worried about regulation forcing a change to the App Store business model?”
Apple’s response: Cook acknowledged that regulatory scrutiny is reasonable and that “Apple doesn’t have a dominant position in any market we compete in.”
Our takeaway: Apple has done the best out of Big Tech in navigating the regulatory threat by making proactive changes to the App Store. While not out of the woods, they’re on track to emerge largely unscathed.
“Why don’t you increase your dividend more?”
Apple’s response: The company said they “plan annual dividend increases.”
Our takeaway: While there was no commentary about share buybacks, we expect the company to maintain its historical cadence of increasing dividends and buybacks when they report their March quarter. Investors don’t fully appreciate the positive significance of Apple returning to net cash neutral. The company ended December 2020 with $84B in net cash.
“What will the impact of new stimulus measures be on the business?”
Apple’s response: Cook took the high road and focused on the stimulus’ purpose of helping people and would not speculate on the impact to Apple.
Our takeaway: We expect Apple will receive a small benefit in 2021 from consumer stimulus spending. We believe this is already reflected in the Street’s 21% y/y growth estimate for FY21.
“What do you see as the most challenging obstacle ahead for 2021?”
Apple’s response: Cook said, “I don’t see obstacles so much as opportunities,” and highlighted the degree to which the Apple teams rose to the occasion last year as an indication that the company is prepared to handle whatever comes its way.
Our takeaway: From a product or competitive standpoint, we don’t see Apple being impacted by major obstacles in 2021. From an investment perspective, a continued rotation out of Big Tech would weigh on shares. Even if that happens, we expect investors to return to Apple given its foundational position in the future of tech.