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Author | Mao Ting

Apple (AAPL.US) and Amazon (AMZN.US) have just announced their quarterly results ending June 2024. Since then, the six largest technology giants with the highest market value on Wall Street, except Nvidia (NVDA.US), namely Apple, Microsoft (MSFT.US), Google (GOOG.US), Amazon, Meta (META.US) and Tesla (TSLA.US), have all announced their quarterly results.

Apple: iPhone revenue falls, service revenue hits record

Apple mainly sells products and then sells high-profit services through product portals.

In the June 2024 fiscal quarter, due to a slight decline of 0.94% in iPhone revenue, Apple's product revenue only increased by 1.62% year-on-year to US$61.564 billion, accounting for 71.8% of total revenue; service revenue increased by 14.14% year-on-year to US$24.213 billion, setting a new record high.

In terms of gross profit, in the June quarter, product gross profit accounted for 54.8% of Apple's quarterly gross profit, while the service division, which accounted for 28.2% of Apple's total revenue, accounted for 45.2% of the total. During the period, product gross profit increased by 1.46% year-on-year to US$21.761 billion, while the service division gross profit increased by 19.73% year-on-year to US$17.917 billion.

Investors are concerned about whether Apple Intelligence, which was released in June this year, will lead Apple into a new era of AI services.

At the earnings conference, Cook mentioned iOS18, which brought updates including a redesigned photo app, new customization options for the main page, satellite information, and the introduction of Apple Intelligence. However, Apple only started providing a beta version to developers this week, and Cook also mentioned at the earnings conference that only some features are now available, not all. In addition, other language versions and other features will not be available until later this year, and ChatGPT will not be integrated until the end of this calendar year, so everything may be delayed.

Cook also mentioned that Apple Intelligence will initially merge with ChatGPT and focus on general knowledge. But in addition to working with partners on content, Apple Intelligence is local processing and private cloud computing, and there will be a lot of personalized content. Cook mentioned that running Apple Intelligence requires both the system and the chip, so only the iPhone 15 Pro and Pro Max and later series can run Apple Intelligence.

Apple's CFO expects that Apple's total revenue in the September quarter will increase year-on-year similar to the June quarter, but service revenue will increase by double digits, similar to the first three quarters of this fiscal year. Gross profit margin is expected to be between 45.5% and 46.5%, and operating expenses are expected to be between $14.2 billion and $14.4 billion.

It is worth noting that, except for Greater China, Apple achieved revenue growth in all markets. Regarding the 6.5% year-on-year decline in revenue in the Greater China market, Cook said that if exchange rate changes are taken into account, the actual decline is less than 3%, that is, half of the decline is related to exchange rate changes, which is an improvement compared with the first half of the fiscal year. Cook said that the data Apple is targeting is the sales comparison of iPhone 15 and 14 at the same time of launch. In this regard, 15 outperforms 14. In addition, there are more new customers. For example, most of the buyers who purchase Mac and iPad in mainland China are first-time buyers, and the same is true for watches. Most of them are first-time buyers. Moreover, during the period, iPad also began to resume growth in Greater China, so Apple is confident in China's long-term opportunities.

Cook also mentioned at the earnings conference that Apple continues to increase its R&D spending and has been investing in AI and machine learning in recent years. In addition to increasing investment, Apple has also redeployed certain technologies to artificial intelligence and machine learning. Apple's capital expenditures include both internal capital expenditures and expenditures for cooperation with external partners. At the same time, external partners also have their own expenditures, which are not included in Apple's account.

Apple's net cash inflow from operating activities in the June 2024 fiscal quarter was close to $29 billion. Apple said it would return $32 billion to shareholders, and Apple's board of directors declared a cash dividend of $0.25 per share.

Cook did not disclose more information and data about Apple Intelligence at the earnings conference, nor did he answer whether Apple Intelligence would drive Apple's future revenue and profits in terms of services, whether buyers would wait for the next iPhone model to be released before changing to another model in order to use AI features, and the impact of this on Apple's performance. However, it is foreseeable that Apple Intelligence will still not bring significant performance improvements to Apple in the coming year.

The capital market's evaluation of Apple's performance is still positive. After the results were announced, Apple's stock price rose slightly after the market.

Amazon: Cloud profits surge

Amazon also announced its June 2024 quarter results, with net sales up 10.12% to $147.98 billion. Sales in North America grew 9.07% year-over-year to $90.03 billion, international division sales up 6.62% year-over-year to $31.66 billion, and AWS division sales up 18.70% year-over-year to $26.281 billion.

The company's operating profit in the second quarter increased to US$14.67 billion, a year-on-year increase of 91.02%, of which North American profit increased by 57.7%, the international business turned losses into profits, and the AWS division's operating profit increased by 74.0%, which drove the growth of operating profit.

In the 12 months ending June 2024, Amazon's net cash inflow from operations increased 75% to $108 billion, and free cash flow increased to $53 billion, compared with $7.9 billion in the same period last year.

Amazon's revenue was lower than the market expectation of $148.76 billion, and its diluted earnings per share of $1.26 was higher than the market expectation of $1.02. Its revenue in the third quarter of 2024 is expected to be between $154 billion and $158.5 billion, an increase of 8%-11%, including a negative exchange rate of 90 basis points. Operating profit is between $11.5 billion and $15 billion, compared with $11.2 billion in the same period last year.

Amazon CEO Andy Jassy said that as enterprises continue to update their infrastructure and turn to the cloud to take advantage of new generative AI opportunities, AWS remains the first choice for customers because of its comprehensive capabilities, excellent security and operational performance, a larger partner ecosystem, and AI capabilities such as SageMaker for model builders, Bedrock for leveraging cutting-edge models, and Trainium for training and reasoning computing power. For users who want not only coding but also the most versatile GenAI assistant for software development and business integration, there is also Q.

Amazon has said it will increase capital expenditures in 2024, most of which will be used for Nvidia's AI chips to train and run generative AI models.

Although Amazon's overall quarterly earnings performance was better than market expectations, the market still seemed to be concerned about its investment and was not satisfied with its third-quarter earnings guidance. After Amazon announced its quarterly results, its stock price fell more than 8% in pre-market trading.

Comparison of "Six Sisters"

Looking at the June 2024 fiscal quarter, the company with the highest revenue growth was Facebook's parent company Meta, with quarterly revenue increasing by 22.10% year-on-year to US$39.071 billion, mainly driven by a 21.69% increase in advertising revenue and a 72.89% year-on-year increase in other revenue from the application series, mainly driven by the growth in business messaging revenue from the WhatsApp business platform.

Among the "Six Sisters", search engine giant Google (GOOGL.US) and social platform Meta also rely on advertising revenue, and their performance also reflects the impact of economic cycles on advertising investment. In terms of revenue scale, Google still has an advantage, with its advertising revenue scale equivalent to 1.7 times that of Meta.

However, in terms of growth momentum, after passing the low period of advertising investment in the fourth quarter of 2022, Meta's growth rate continued to lead Google, as shown in the figure below.

From the perspective of quarterly operating profit, Meta's operating profit margin also increased the most, up 8.65 percentage points year-on-year to 38.00%. From the perspective of operating expenses, Meta's sales and administrative expenses decreased significantly, mainly due to the high base generated by the structural reorganization in the same period last year. Therefore, its operating profit margin also increased the most, as shown in the figure below.

In terms of R&D expenditure, Amazon has the largest investment scale, reaching US$22.304 billion, which is close to Tesla's quarterly revenue scale; and in terms of the proportion of revenue, the largest scale is Meta, which wants to develop the metaverse, accounting for 26.97% of total revenue, as shown above.

Amazon has the largest cloud business, and its layout in AI is relatively comprehensive. Therefore, its R&D investment is also relatively high.

In the June 2024 fiscal quarter, Amazon's AWS recorded revenue of $26.281 billion, an increase of 18.70%. In contrast, Google Cloud's quarterly revenue was $10.347 billion, only 39.37% of AWS, but an increase of 29%; Microsoft did not disclose the revenue scale of Azure and other cloud services, only revealing that the revenue scale of Microsoft Cloud, including servers, was $36.8 billion, but it is believed that Azure only accounts for a part of it, and the revenue growth of Azure and other cloud businesses was also 29%.

Although Amazon AWS's revenue growth is lower than that of Microsoft Azure and Google Cloud, its revenue scale and profitability are there.

Microsoft has not disclosed Azure's specific revenue and profit data, but in terms of the comparison between AWS and Google Cloud, AWS's profitability has been relatively stable. As shown in the figure below, Google Cloud has achieved operating profit since the first quarter of 2023, while AWS has surpassed North American business as early as 2015 to become Amazon's largest profit source. In the first two quarters of 2024, AWS's segment operating profit margin reached 37.63% and 35.52% respectively, much higher than Google Cloud's 9.40% and 11.33% in the same period.

Such outstanding results are inseparable from Amazon's huge R&D investment. However, in terms of net profit, Amazon is not the best, because Amazon pursues the accumulation of free cash flow, and accumulates profits through huge e-commerce transactions to invest in high-tech such as AWS. Therefore, Amazon does not return a large amount of profits to shareholders like other technology giants such as Apple.

Valuation Comparison

Apple's stock price rebounded recently and finally returned to the throne of the world's highest market value. Among the "Six Sisters", Meta has the largest cumulative increase in stock price this year. The rebound in advertising revenue should bring good performance growth expectations (see the table below, Meta's expected price-to-earnings ratio has improved significantly, which means that the market expects Meta's profit growth this year to be good), while Tesla has the worst stock price performance.

Tesla's June 2024 quarter car sales fell less than expected, and its stock price rebounded significantly after the results were announced. However, lower-than-expected demand for electric vehicles, delays in Tesla products (such as RoboTaxi), the release of FSD, and regulatory restrictions have all affected investors' views on its prospects.

As can be seen from the table above, Google, Amazon and Meta outperformed the Nasdaq index, but Apple, Microsoft and Tesla did not perform as well as the overall market. This differentiation may also reflect the market's pessimism about the prospects of these three companies. Apple and Tesla may have problems with the demand for their hardware products, while Microsoft's concern may be the growth of its Azure.

The focus of the market in the second half of the year will be on the evolution of the AI ​​concept. These six top technology companies have integrated AI opportunities into their internal structures and existing businesses, and are actively exploring new AI monetization models, but the results may vary from person to person. More importantly, they all plan to invest large amounts of capital expenditures in AI, but whether they can produce the expected returns is increasingly doubtful, so their performance will also depend on the investment-return ratio.