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It’s Not Just That Apple Hit the $1 Trillion Mark, It’s How

Motley Fool Staff, The Motley Fool

In this segment from the Motley Fool Money podcast, host Chris Hill and senior Motley Fool analysts Jason Moser, Matt Argersinger, and Ron Gross consider the quarter that pushed Apple (NASDAQ: AAPL) across the finish line in the "first to the $1 trillion market cap" marathon.

The tech giant's consistent strong growth made this milestone appear almost inevitable, but even in context, the results it delivered were impressive -- revenue up 17%, even with iPhone unit sales essentially flat, service business revenues up 30%, plus huge share buybacks this year. Is there anything not to like about Apple right now?

A full transcript follows the video.

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This video was recorded on Aug. 3, 2018.

Chris Hill: We begin with the first company to hit a market cap of $1 trillion -- shares of Apple up this week after third quarter revenue came in north of $53 billion. Ron, this isn't even their big quarter.

Ron Gross: [laughs] But what's not to like? It's very impressive, with revenue up 17%, even though iPhone volume was flat. They've been able to increase price points, the Service business up 30%. I love that that's becoming a more important part of this business. Repurchased shares, gobs and gobs of shares. $43.5 billion of its own stock during the first six months of this year, $220 billion of stock since it announced the buyback program in March 2012. Still has $243 billion of cash on the balance sheet, and plenty more buybacks to come. The dividend is there. It's only 1.4%. I imagine that will be increased. We'll have a nice shareholder yield company going forward.

Matt Argersinger: That's what's so impressive. By buying back so much stock over the last couple of years, they kept upping the bar on the share price they needed to hit one trillion. It just makes my defeat feel so much worse, because I had been riding Amazon's train for a few years now. I think it's nice, because now we get to talk about the first company to get to $2 trillion, and you can bet who I'm going with.

Jason Moser: I was with Matty along that ride, calling for Amazon. I think we both probably knew, though, the chances favored Apple. It made a lot of sense. It didn't have that far to go. There's a reason why they're there. It's a phenomenal business, a phenomenal company. We've talked a lot through the years and quarters, it's still primarily a phone company. The big question was, how do they address that? Can they make the leap beyond just that?

To Ron's point, iPhone sales, the growth is abating a little bit, but they've really turned it up on the Services side. I think they continue to bring a little bit more value to the table for the people who are in that Apple universe already. It's a very relevant business that should continue to be relevant for many years to come.

Argersinger: I have to say, one thing we talked about in the past with Apple is, with the dependency on the iPhone, what would ultimately happen to its pricing power, with so much competition? But the average selling prices for the phones has kept going up. It's been very impressive.

Moser: They got a lot of that from the iPhone X, or 10, or whatever it is. God, why wouldn't you just name it 10? That's the one black mark on this company! Just put a 10! They bumped that price up considerably. It was $1,000. They're not selling those things like hotcakes, but they're selling enough that it really helps juice that average selling price, along with that iPhone 8.

Gross: By the way, the stock is not expensive. There's no irrational exuberance going on here, even though the trillion-dollar number sounds big. I don't know, 16X forward earnings? Relatively reasonable.

Hill: Remember when the big question around Apple was, "Is this company ever going to pay a dividend?" Then, once they did start paying a dividend, you had some people out there saying, "That's it for the stock. It's going to be 3M and people are only going to buy it for the dividend. There's no growth."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon. Jason Moser owns shares of Apple. Matthew Argersinger owns shares of Amazon. Ron Gross owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.