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Apple Shareholder Meeting: Two Observations and One Question
Ahead of the Apple annual shareholder meeting, I've taken an inventory of recent analyst and investor commentary. There are two things that I feel are missing. First, Apple's strength of product demand and favorable economics despite the macro. Second, Apple's wide diversity across product lines, sectors, geographies, and currencies, which affords investors the safety of a consumer staples company. I also have one question to ask management at the meeting: Will Apple Car see the light of day?

Key Takeaways

As for the shareholder meeting itself, likely all 9 proposals will go in Apple's favor.
Demand for Apple's products has largely performed well with favorable economics despite the macro.
Apple is a consumer staples company with the benefits of diversification.
My one question for Apple: Will the Apple Car see the light of day? 

What's being voted on

There are nine proposals being voted on at this year’s Apple shareholder meeting. Four are management proposals, and five are coming from shareholders. As is typical, Apple recommends voting in favor of its proposals and against the shareholder proposals.

The only proposal that jumped out to me was #6 related to auditing Apple’s activity in China, which speaks to investors’ continued geopolitical concern.

Here’s a summary of each proposal.

  1. Election of Directors – Management: The nine directors nominated are all currently serving on Apple’s board.
  2. Appointment of Accounting Firm – Management: Vote is to keep Ernst & Young as Apple’s auditor. Fun data point: Apple paid E&Y $22.7m in 2022, down from $23.2m in 2021. Looks like CFO Luca Maestri negotiates with both suppliers and auditors.
  3. Approve Executive Compensation – Management: This is essentially the same plan as previous years.
  4. Frequency of Say on Pay Votes – Management: This is related to the frequency that shareholders can approve the above executive compensation.  Executive compensation is currently up for an annual vote and Apple wants to keep it at one year.
  5. Civil Rights and Non-Discrimination Audit Proposal – Shareholder: If passed it would require Apple to have an annual audit analyzing “the company’s impacts on civil rights and non-discrimination, and the impacts of those issues on the Company’s business.” Apple’s view is there is no need for an audit given there has been a “comprehensive approach to pay equity and diverse representation at every level of the Company and since 2017.”
  6. Communist China Audit – Shareholder: If passed it would require Apple to “report annually to shareholders on the nature and extent to which corporate operations depend on, and are vulnerable to, Communist China.” Apple believes they “already provide the information requested by this proposal through our filings with the SEC and our extensive voluntary reporting relating to our international operations, including our supply chain and operations in China.”
  7. Board Policy – Shareholder: If passed there would be fewer restrictions on when Apple board members can communicate with shareholders. Apple’s view is “the proposal is overly prescriptive and would detract from the Board’s ability to effectively discharge its duties by restricting when, how, and through whom shareholder engagement is conducted.”
  8. Racial and Gender Pay Gaps – Shareholder: The proposal states when it comes to pay gaps “Apple reports only statistically adjusted gaps but ignores unadjusted gaps, which address structural bias women and minorities face regarding job opportunity and pay, particularly when men hold most higher paying jobs.” Apple’s view is they “report on our progress on representation annually on our Inclusion and Diversity website.”
  9. Shareholder Proxy Access Amendments – Shareholder: The goal is to give shareholders the opportunity to nominate more than one director annually. Apple’s view is shareholders don’t care, noting in 2022 “no shareholders provided feedback on, or sought changes to, our existing proxy access provisions.”

2 billion active devices growing at 8% y/y defies the law of large numbers

It was a rare revenue miss in Apple’s December 2022 quarter. That said, all indications are the business continues to perform well under pressure. The December quarter data point that jumped out to me was the 2B active device number, up 8% y/y. That’s impressive growth in the face of the law of large numbers. Meta for example also has about 2B daily active users, with that number growing at 2% annually. The active device number shows Apple’s device flywheel is working as the company continues to stick to its time-tested game plan: delight customers and those customers will stay loyal and buy more Apple products.

Additionally, the company’s financial strength often gets overlooked, with the company reporting around $125B in EBITDA last year and returning $90-100B to shareholders annually. This is all powered by operating efficiency, evidenced by gross margins slowly moving higher despite recent annual declines in units.


The portal through which we engage with the world

Apple is widely diversified across product lines, sectors, geographies, and currencies affording investors diversification along these lines within AAPL stock. The iPhone, iPad, Mac, Watch, AirPods, and Apple Pay are playing an ever-increasing role in many of our lives as our starting point and a portal to engage with the world. This is the reason why I believe investors will increasingly view and value Apple as a consumer staples business. As a point of reference, the leading consumer staple companies including Coke, Procter & Gamble, Clorox, and Costco trade at an average 25x P/E on next year’s estimates compared to Apple at 23x. Apple essentially trading in line with consumer staples companies catches my attention because traditional consumer staple companies don’t offer dynamic upside potential in the form of optionality around wearables, AR, metaverse, and automotive. In other words, I see a case where AAPL should trade at a higher multiple compared to most consumer staple companies. 


Automotive is Apple's biggest optionality lever

Last December Bloomberg published a story detailing that Project Titan, Apple’s autonomous vehicle, will be delayed, again. The Bloomberg reporting — which I believe to be accurate — begs the question: Will the Apple Car see the light of day?

There are two reasons why I believe this is the biggest question investors should be asking. First, the concept of the car has fundamentally changed to be more computer-like. Tesla has proven the power of vertically-integrating software, hardware, and services in auto — a playbook that Apple wrote for devices.

Additionally, an Apple-made car will singlehandedly solve their growth challenge. In 2023, the company will hit $415B in revenue and, given the law of large numbers, revenue growth will hover in the mid-single digits if the company continues to pursue products targeted at its existing markets. Those growth rates are acceptable for a higher multiple consumer staples company and don’t provide dynamic upside.

The auto market is massive enough to move up Apple’s growth rate. Each year, there are about 75m cars sold globally. Applying a global $32k average selling price (it’s about $46k in the US) suggests that the addressable market is about $2.5T. BMW and Mercedes each hold about 3% global delivery market share. If Apple were to capture 4% of vehicle sales (3m cars) at an average price of $50k per car, that would add $150B a year in revenue. Assuming Apple’s core business grows at 5% over the next 7 years and Apple sells 3m cars in 2030, Project Titan would add 27% to Apple’s overall business in 2030. This sets aside the profitability question for now, which I am ok doing given the company’s success at partnering with manufacturers to sell hardware at industry-high margins.

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