March 20: Monday Market Report

After last week’s drama surrounding SVB bank, another banking crisis loomed this past week surrounding a 144-giant, Credit Suisse. The Swiss bank has been facing turmoil and problems for a while now. Last week, UBS bought out Credit Suisse in a CHF3.3B deal, shocking employeees in a swift move that also reduces investments and shores up banking inside the company. Credit Suisse’s $17B in bonds is now considered worthless. The Swiss government will backstop losses on CHF9B in assets purchased by the bank. To support the UBS takeover of Credit Suisse, SNB or Saudia National Bank, offers $100B in liquidity to UBS. Yet another bank, First Republic, is showing major signs of distress, despite a $30B bailout, resulting in a drop in their credit rating by the S&P. Several regional banks seem unable to withstand the drops in investment portfolios and loan books. These banking crises have roiled up markets, fueling strong concerns about the health of the global financial system. This stress in the banking system is expected to create a rough end to the bear markets in the United States, according to Morgan Stanley’s Michael Wilson. Banks are expected to tighten up lending rules. The reduction in available credit offered out by banks will in turn be expected to squeeze out growth from the economy. Central banks also announce measures to improve US dollar liquidity.

Earnings estimates are expected to go down as a result. Even the Oracle of Omaha, Warren Bufffet has stepped in to give advice to President Biden upon the President’s request. Will other banks be affected? Is the Fed still going to raise interest rates? We explore these questions and more on Twitter and right here in our new weekly blog post, Monday Market Report.

Consensus around an interest rate hike of 25bp is expected, according to FedWatch. Investors are keen to hear Federal Reserve chairman Jerome Powell’s decision by March 22. At that time, the Fed will also share a Statement of Economic Projections (SEP) with forecasts for stickier inflation.

Many large employers continue to slash their workforces. Amazon has reduced yet another 9,000 staff from its AWS and Twitch services. All in all, the company has removed 18,000 workers since November.

Despite the angst surrounding the banking industry and some initial wobbling, the S&P 500, Dow Jones, Nasdaq and Russell 2000 all posted gains.

Have a great week ahead!

Data for this report has been compiled from Yahoo! Finance, WSJ, FactSet, Bloomberg, FedWatch, Financial Times, and Reuters.

Smartphone Users Use Devices More like Computers Than Phones, Study Reveals

Report by Counterpoint Research Reveals that Over Half of All Users Surveyed, Spend More than 5 Hours a Day on Smartphones

Counterpoint Research compiled global insights by pulling data from an extensive survey of 3,500 smartphone users aged 15-45 across the globe to better understand mobile user behavior, patterns, preferences and factors that influence purchasing decisions. Today, approximately half the world’s total population (7.6 billion users) uses smartphones. Annual spending exceeded $370 billon in 2017.

Time Spent Daily Using Smartphones

Since its introduction in 2007, the iPhone changed how users interacted with their phones and helped integrate varied, desired functionality into one device such as browsing the Internet, composing emails, taking photographs, sending text messages, making phone calls and playing games. Unlike prior smartphones where users still used the devices primarily for making phone calls, iPhones opened up opportunities for more computing and actual work functionality. Fast forward to today, smartphone users of both iPhones and other devices, use their smartphones for mobile computing activities primarily. Many dedicated users run businesses on their phones. Others consume digital content for hours.

Mobile User Behavior

The iPhone Brought Powerful Desktop Computing to A Small Screen

These consumer trends in many ways mirror Apple’s own foray into the smartphone world where the initial iPhone product in 2007 brought powerful desktop computing features into a portable, small device, including WiFi networking but was not necessarily the best mobile telephone at the time, given restrictions with carriers, shorter battery life and lagging in the trend in the next few years towards 3G and 4G Lite. However, the iPhone introduced the concept of apps to the world beyond computing professionals through the launch of the App Store and allowing third-party software to run code on iPhone devices. This sparked a tremendous revolution across industries, spurring innovation and new ideas, as well as offering developers the opportunity to create software on their own terms. Games were among the most popular apps initially and the quality of games on the iPhone was far superior to any other existing platform at the time because of the larger screen, graphics capability and computing power. Eleven years later, this dominance is still prevalent, although other platforms have also significantly improved and providing excellent mobile experiences. Other phone platforms such as Microsoft’s Windows Mobile were unable to compete after the launch of the iPhone as they failed to provide an enjoyable mobile user experience and functionality.

How the laptop combined the functionality of numerous office devices and applications

Essential laptop functionality is now available on your iPhone and other smartphones

Today, you can walk on any street in practically any neighborhood in the world and see a smartphone user engaging with content on their mobile device with focused attention. Smartphones are ubiquitous and offer consumers independence to search for information themselves, communicate directly wherever they are, work or entertain themselves.

Preference for Mobile Sophistication and Ease of Use

The iPhone offered a smoother mobile browsing experience than any preceding smartphone when it launched. With the use of Notifications, the iPhone helped introduce users to simplified, faster communication updates, that Apple then rolled out to other mobile devices such as the iPad and for the Apple Watch, which does not use an independent web browser, but relies solely on apps.

This conscious choice by Apple to provide a simplified and distinct mobile computing experience helped win consumer loyalty due to an enhanced and enjoyable user experience. This was in sharp contrast to Microsoft’s effort to scale down its Windows PC platform to a mobile device through all of its iterations from Windows Mobile to Windows Phone, Window’s RT tablets and detachables. Despite its initial success with Surface, Microsoft has been unable to grow sales beyond a million devices per quarter - the same sales numbers the company garnered from a decade prior.

Google, on the other hand, succeeded in making the Android platform attractive to smartphone users by offering similar features to the iPhone. However, Google’s mobile computing efforts lag behind the iOS ecosystem for several reasons ranging from cybersecurity to providing streamlined mobile web browsing, lack of customization options, lack of development tools and by being very slow to attract and retain popular, exclusive games.

Smartphone users are looking for greater sophistication in their mobile devices and are thus willing to pay more for premium devices.

Demand for a Higher Quality, More Sophisticated Mobile Platform

The report revealed that more than half of the Australian, Chinese, German and Saudi smartphone users are willing to spend more than US$400 to replace their current devices. Apple also dominated the user base in both Germany and Australia with as many as 85% of users insisting on brand loyalty.

Japanese users were less willing to spend more than $400 on new devices, despite Apple being the most popular smartphone brand in their country. This trend in Japan reflects cultural preference as Japanese consumers tend to be more conservative than consumers in other countries.

Also Japanese consumers tend to buy higher priced models and hold on to them longer (average of 26 months) as compared to Mexican consumers for example, that have the shortest life cycle of smartphones (average of 18 months or less). Over one-third of all Mexican consumers however purchase used smartphones. The smartphone replacement cycle has shortened significantly due to developing markets, which is also spurred on by the rise of newer Chinese brands that provide higher quality models at affordable prices than previously available. The report also revealed that as high as two out of three mobile users in India intend to upgrade to a newer phone within the next twelve months.

Shorter Smartphone Use Cycle Worldwide

The report revealed that Apple was in the top three most sought out brands for purchase for all respondents. Roughly 50% of all survey respondents in developed countries also subscribe to digital streaming services, with Netflix in use by 30% of Australian users and 40% of German respondents using Amazon Prime.

In addition, digital payment methods are increasing in popularity worldwide, particularly in China (AliPay and WeChat) and Thailand (True Money). This is due to their ease of use and ability to override gaps in financial infrastructure for many developing markets.

A Day After Its Stock Hit $200, Apple Becomes the First Company to Hit $1 Trillion Market Cap

Just two days after Apple reported its fiscal third quarter earnings, Apple has reached a $1 trillion market cap - the first company in history to reach a 12-figure company valuation ever.

Customers First

Despite Apple's tremendous achievement, Apple's CEO Tim Cook remained humble about the success, noting that the mark was a "significant milestone to be proud of" but that customer service, product design and company values come first, in a memo sent to Apple's 120,000 employees, shared with Reuters.

“Financial returns are simply the result of Apple’s innovation, putting our products and customers first, and always staying true to our values.”

— Tim Cook, Apple CEO

“Steve founded Apple on the belief that the power of human creativity can solve even the biggest challenges — and that the people who are crazy enough to think they can change the world are the ones who do.”

— - Tim Cook in Apple Memo

Strongest Third Fiscal Quarter Ever

On July 31st, Apple reported its strong Q3 earnings with record results, posting quarterly revenue of $53.3 billion with iPhone sales of 41.3 million units, an increase of 17 percent from one year prior, and quarterly earnings per diluted share of $2.34, up 40 percent. 60 percent of the quarter’s revenue came from international sales. A day prior, Apple had revealed an adjusted share count of 4,829,926,000, meaning that Apple stock (AAPL) would need to reach $207.05 in order to hit the $1 trillion value, reported by CNBC.

“We’re thrilled to report Apple’s best June quarter ever, and our fourth consecutive quarter of double-digit revenue growth,” said Tim Cook, Apple’s CEO. “Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline.”

Apple's new store in Milan. Image via Apple

Revenue overall was up 17 percent and EPS up to 40 percent this past June and record growth in service revenue. “Our strong business performance drove revenue growth in each of our geographic segments, net income of $11.5 billion, and operating cash flow of $14.5 billion,” said Luca Maestri, Apple’s CFO. “We returned almost $25 billion to investors through our capital return program during the quarter, including $20 billion in share repurchases.”

View Consolidated Statements here. View Data Summary here.

Apple's stock rose 5 percent in the next 24 hours after its earnings announcement, passing the $200 mark. The day after its stock hit the $200 mark, Apple became the first $1 trillion company in history, the first company ever in business to cross a 12-figure company valuation.

You can listen to the investor earnings call at www.apple.com/investor/earnings-call/. This webcast is available for approximately two weeks from the day of posting (July 31).