Apple Q4 Earnings update

Current Price: $109         Price Target: $129

Position size: 8.2%          TTM Performance: +81%

 

 

• Beat estimates – Beat on revenue and EPS w/ beats across all segments except iPhones. Mac and iPad sales were particularly strong, iPhones sales (small miss) were down 21% related to the delayed iPhone launch this year. The launch was delayed by a few weeks which caused a negative comparison vs last year.
• Weak sales in China not concerning – sales in China were down 29% while other geographies were strong. The weakness was driven by the delayed product launch vs last year – this had a bigger impact on the China revenue comparison as new phone were a higher percentage of Q4 revenue in the region last year.
• Response to new 5G phones – “off to a great start”
• No specific guidance – said that they expect both Products (ex. iPhone) and Services revenue to grow double digits YoY in Q1, in line w/ consensus.
• CEO Tim Cook said…”Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive.” 

 Additional Highlights:

• Apple reported record revenue, earnings and FCF despite “an extremely volatile and challenging macro environment” and a delayed iPhone product launch which left iPhone sales down 21% for the quarter. This demonstrates the broad relevance and appeal of their products.
• Reported total revenue of $64.7B for the quarter, up 1% YoY. Outside of iPhone, they grew 25% in aggregate and had strong double-digit YoY revenue growth in each product category. They set all-time records for Mac and services and a September quarter record for Wearables, Home and Accessories.
• Q1 (Dec quarter) Guidance – They expect all products (ex-iPhones) in aggregate to grow double-digits and also expect services to continue to grow double-digits. This is in line w/ the street. No guidance on iPhone sales other than to point out that they are shipping iPhone 12 and 12 Pro four weeks into the quarter, and iPhone Mini and 12 Pro Max seven weeks into the quarter. Street expects iPhone sales growth to be ~7% in Q1 (their Dec quarter) – so expectations were already lower than other segments.
• They are experiencing supply constraints on most hardware products
• Sales by segment:
• iPhone – $26.4B, below estimates of $27B, impacted by later product launch. As anticipated, they launched their new iPhone models in October, a few weeks later than last year’s mid-September launch. Mgmt. said that up to that mid-September point, customer demand for iPhone was very strong and grew double-digits and that, for the quarter, iPhone sales (while below consensus) were ahead of internal expectations. They just started shipping iPhone 12 and 12 Pro and are “off to a great start.”  They start pre-orders on iPhone 12 Mini and 12 Pro Max next Friday.
• Services revenue was $14.549 billion, a gain of 16%. The average estimate was $13.87 billion. Record quarter for the App Store, AppleCare, cloud services, music and payment services. Apple One launches tomorrow – bundled Apple services plan w/ Music, TV+, Arcade, iCloud, News+ and Fitness+ on a single plan. They now have >585m paid subs across services, up 135m YoY. They aim to reach 600m by year end.
• Mac sales were $9 billion, up 29%. The average estimate called for $8.04 billion. Grew strong double-digits in each geographic segment. Seeing amazing customer response to the new MacBook Air and MacBook Pro.
• iPad revenue came in at $6.797 billion, up 46%. That’s compared to an estimate of $6.06 billion. Management commented that they are supply constrained on both Mac and iPad
• Wearables & Accessories -revenue of $7.87 billion, up 21%. The average estimate was $7.35 billion. Wearables business is now the size of a Fortune 130 sized company. That basically puts their wearables business just ahead of Dollar Tree in annual revenue or ~$24B.
• Greater China is the region that was most heavily impacted by the absence of the new iPhones during the September quarter. Still they beat their internal expectations in the region growing non-iPhone revenue strong double-digits and iPhone customer demand grew through mid-September. Mgmt. said “the underlying business in China last quarter was very strong and perhaps very different than you might think from just a quick look at the stated number”…”we are very bullish on what’s going on there.”
• Yesterday, the government of Singapore and Apple launched LumiHealth, a first of its kind program designed to encourage healthy activity and behaviors using Apple Watch. Created in collaboration with the team of physicians and public health experts, LumiHealth uses technology and behavioral insights to encourage Singaporeans to keep healthy and complete wellness challenges through their Apple Watch and iPhone. This touches on a secular opportunity for technology to be deflationary for healthcare costs by enabling (and in Singapore’s case helping incentivize) more preventative behavior…and Apple is at the forefront of this.
• Ended the quarter with almost $192B in total cash and $79B in net cash. Returned nearly $22 billion to shareholders during the quarter with $3.5B in dividends and over $18B in share repurchases.
• Trading at >4% FCF yield on 2021 w/ another >4% of their market cap in net cash on their balance sheet.

 

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