Tim Cook and Warren Buffett
Getty Images (left) | CNBC(R)
He has emerged as one of Apple’s top evangelists in recent years.
At the end of 2023, Berkshire owned about 6% of Apple’s stock, which was worth $174 billion at the time, or about 40% of Berkshire’s total value. That’s about four times the size of Berkshire’s second-largest public holding, Bank of America, making Berkshire the second-largest Apple shareholder after Vanguard.
Apple is likely to be a hot topic as Berkshire investors and fans of the 93-year-old Buffett flock to Omaha this weekend to attend the company’s 2024 annual meeting. The tech giant on Thursday reported a 10% year-over-year decline in iPhone sales and a 4% decline in total revenue. But on Friday, the stock had its best day since late 2022, largely due to its $110 billion share buyback plan and higher margins from growth in its services business.
Buffett said his bet on Apple and CEO Tim Cook paid off handsomely, with Berkshire’s Apple stock costing him just $31 billion in 2022. His company is up almost 620% on investments since the beginning of 2016.
Despite calling himself a “fanatic,” Buffett has long maintained that he loves Apple, even if he’s not an engineer. He had seen how passionate Apple users were about their devices and thought the iPhone was a great product that would allow customers to keep their spending within his Apple ecosystem. He calls it “the moat.” This is one of his favorite words to describe the business he likes.
“Apple’s position with consumers is that they are paying $1,500 or more for a cell phone, and the same people are paying $35,000 for a second car.” said Buffett. Said At last year’s meeting. “And if they have to give up his second car or give up his iPhone, they’ll give up his second car as well.”
The data is in his favor. According to a study by Consumer Intelligence Research Partners, Apple’s customer loyalty is 94%, which means that 9 out of 10 current iPhone owners in the US would choose another iPhone owner when purchasing a new device. means that you have selected an iPhone.
Buffett also praises Apple’s ability to return billions of dollars to shareholders each year through stock buybacks and dividends, a capital allocation strategy that Buffett himself may appreciate. In a 2016 interview with The Washington Post, when asked who he would turn to for advice at a critical moment, Cook shared a story about his relationship with Buffett.
“When I was passing through, [the question of] How can we return cash to shareholders? Who can really give great advice here? Is there anyone who is unbiased? ” said Cook. “So I called Warren Buffett. I thought he was a natural.”
Apple is thanking Oracle of Omaha in another way.
In 2019, the company released an original iPhone game called “Warren Buffett’s Paper Wizard,” in which a newsboy rides his bike from Omaha to Cupertino, Calif., the home of Apple.
But with Apple’s business having shrunk in five of the past six quarters and only expected to grow in the low single digits this quarter, Buffett said he still sees the same force this weekend, especially in the outer moat. You may be faced with the question of whether there is one. Regulatory pressure is mounting, especially on big tech companies.
Buffett cut his stake in Apple late last year, but only by about 1%. Even after Friday’s gains, stocks are still down 3.8% in 2024, while the S&P 500 is up 7.5%.
Berkshire’s first foray into Apple in 2016 was not Buffett’s idea. Rather, the investment was led by one of Buffett’s top aides, Ted Weschler, and was seen as a handoff to the next generation of Barskier investment managers.
But the next year, Berkshire started buying more Apple, and Buffett started talking about it. Although he didn’t use it, he said he liked the stock and the company’s “sticky” product.
In 2018, he said Apple users are “very, very, very locked in, at least psychologically and spiritually” to their products and ecosystem.
“Apple has an extraordinary consumer franchise,” he said.
in last year’s When asked at the annual meeting how Berkshire could defend Apple’s presence as a large part of its public portfolio, Buffett said, “It just so happens to be a better business than anything we own.” Only,” he said. He also hailed Cook as one of the “best managers in the world.”
Despite declining revenues, 2.2 billion is a number Apple likes to use to tout the health of its business. That’s the number of devices the company currently uses, indicating a huge customer base that Apple can tap into as it rolls out new subscription services.
“Once a customer joins the ecosystem, they never leave, so this is a speculative high-tech strategy,” said Dan I, chief investment officer of Fort Pitt Capital Group, which owns Apple stock. Not,” he said. “It’s more like a pension, and I think that’s what Warren Buffett really thinks about.”
In addition to declining sales, Apple also faces new challenges such as regulation, weak overseas markets and advances in artificial intelligence from Microsoft and Google.For regulators, the concern is precisely moat Whether Mr. Buffett finds it so attractive and whether it gives the company exclusive control in the smartphone market.
The U.S. government alleged in March that Apple designs its business to lock in customers. The Justice Department’s lawsuit argued that products such as the Apple Card, Apple Arcade game subscriptions, iMessage, and the Apple Watch work best only on the iPhone, creating illegal barriers. It exposes them to competition and makes it harder for consumers to switch when it’s time to upgrade.
But the lawsuit is expected to take years, and potential penalties for Apple and its products are far in the future. Meanwhile, new devices like virtual reality goggles are finding only niche users, consumer AI products are not widespread, and there is no sign of the iPhone becoming less important.
Buffett has not publicly expressed his views on Apple’s regulatory hurdles, and this will be the first opportunity for investors to ask him about the issue since the Justice Department’s lawsuit. But Buffett knows a thing or two about regulation. His two markets in which he is most active are railroads and insurance.
Bernstein analyst Toni Sacconaghi didn’t delve into regulatory concerns in a note to clients earlier this month, but said the Justice Department lawsuit “seriously threatens the strength of Apple’s ecosystem.” “I don’t think so.”. He also said that following Buffett’s lead in entering and exiting Apple is a solid strategy for making money.
“Despite his reputation as a long-term buy-and-hold investor, Warren Buffett has been surprisingly disciplined in increasing his position in Apple when it is relatively cheap and reducing it when it is relatively expensive. ” Sacconaghi wrote. He encouraged investors to “be like Buffett.”
Perhaps Buffett was excited about Apple’s announcement this week about expanding its buyback program. It’s a habit he’s loved for years.
“When you buy Apple, you know that Apple is going to buy back a lot of stock,” he said in 2018.
And I like to look at how stock buybacks allow you to get more stock without having to buy more stock.
Buffett: “The stock buyback calculation is slowly fading away, but it could become more powerful over time.” said in 2021.
Apple also increased its dividend by 4% and indicated that it will continue to do so every year.
Buffett spoke passionately about Apple’s capital return strategy at Apple’s annual meeting last year, noting that it helped Berkshire own a bigger piece of the pie. Unlike insurance company Geico and homebuilder Clayton Homes, which are wholly owned by his company, Berkshire can continue to increase its stake in Apple, a fact he reminded investors at the meeting.
“The good thing about Apple is that it can go up,” Buffett said.
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