berkshire hathawayWarren Buffett was still using a flip phone in 2020, four years after the investing titan began piling up a huge stake in the iPhone maker.
“I don’t understand telephone calls at all, but I do understand consumer behavior,” Buffett said at Berkshire’s annual shareholder meeting in Omaha, Nebraska, last year.
In recent years, he has emerged as one of them. apple Top evangelist.
At the end of 2023, Berkshire owned about 6% of Apple, valued at $174 billion at the time and about 40% of the conglomerate’s total value. That’s about four times Berkshire’s second-largest public holding. american bankThe company became Apple’s second largest 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 has increased nearly his 620% in investments since the beginning of 2016.
Despite being a self-proclaimed Luddite, Buffett has long maintained that he loves Apple, even if he is not a technical person. 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 benefits from 94% customer loyalty, which means that 9 out of 10 current iPhone owners in the US purchase a new device. This means that when you choose another his iPhone.
Buffett has also praised Apple’s ability to return billions of dollars to shareholders each year through stock buybacks and dividends, a capital allocation strategy the billionaire investor would appreciate himself. When the Apple CEO was asked in a 2016 interview with the Washington Post that he looked to for advice at key moments, Cook offered 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 Apple’s business has shrunk in five of the past six quarters, and with only low-single-digit growth expected this quarter, Buffett said at this weekend’s shareholder meeting that Apple still has the same power. You may be faced with the question of whether you think there is. The outer moat is particularly evident as regulatory pressures mount around the tech industry’s mega-corporations.
Buffett cut his Apple stock by just about 1% late last year. Even after Friday’s gains, stocks are still down 3.8% in 2024, while the S&P 500 is up 7.5%.
“I feel very, very, very confined.”
Berkshire’s first foray into Apple in 2016 was not Buffett’s idea. Rather, the investment was led by one of his senior lieutenants, Ted Weschler, and was seen as a handoff to the next generation of Berkshire investment managers.
But the next year, Berkshire started buying more Apple stock, 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, the number Apple likes to use to tout the health of its business is “2.2 billion.” 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 like a pension, and I think that’s what Warren Buffett really thinks about.”
In addition to declining sales, Apple faces new challenges such as regulation and a weak overseas market. microsoft and Google Advances in artificial intelligence.For regulators, the concern is moat What appeals to Mr. Buffett, 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.”
More refunds
Perhaps Buffett was excited by 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 raise it every year.
Buffett spoke passionately about the tech giant’s capital return strategy at the conglomerate’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.