Apple released its fourth quarter results yesterday, November 01, following the closing bell. Analysts were disappointed even as the iPhone ASP grew by closer to 30 percent year over year.
Analysts React To Apple’s 4Q Earnings
We downgrade Apple to Neutral from Buy with a PO of $220. We recently cut our PO & ests. anticipating a weaker Dec guide. Post results we are incrementally concerned that not all the weakness is capture in N/T and we are likely to see further negative estimate revisions. Although the L/T opportunity is significant, we expect N/T pressure on shares driven by: (1) iPhone unit pressure from weakening emerging markets, (2) iPhone unit elasticity given significant step ups in ASPs, (3) deceleration in Services given weakening app store trends, (4) expectation of supply chain order cuts over the next few months, (5) significant positive revisions in the last year reversing to negative revisions in F2019, (6) potential flexible OLED phone from Samsung in 2019 (significant form factor change) can create share headwinds, and (7) time for investors to adjust to the new disclosures.
Yesterday after the close, AAPL reported solid FQ4 results, though FQ1 guidance was slightly light, with the company citing iPhone timing, Fx and emerging market pressure. The company also no longer plans to release unit figures, which raised questions, but will break out services gross margins, a potential positive. Positively, iPhone ASP climbed 28% YOY, services grew 27% and other products (watch) surged 31%. Puts and takes to be sure, though we remain positive on the broader eco-system and would buy on weakness.
AAPL beat the September quarter on better iPhone ASPs. Service revenue missed our/consensus estimates slightly. Guidance was light on revenue, in line on gross margin and contained higher opex. We believe that the new iPhones are boosting ASPs nicely, but unit growth is still lacking. We are skeptical about the sustainability of ASP increases as a growth driver. Management will no longer provide unit numbers, and some investors may be disappointed by the lower level of disclosures. We are lowering our estimates and price target, and remain Market Perform.
Apple has released its 4Q18 earnings report. During the quarter, the Company reported operating revenue of US$62.9bn (+20%), gross profit of 38.3% (+4pcts) and net profit of US$14.1bn (+32%). For the whole year, Apple is expected to post operating revenue of US$265.6bn (+16%) and net profit of US$59.5bn (+25%). Quarterly revenues from the iPhone, iPad, Mac, services and other hardware in 4Q18 stood at US$37.2bn (+29%), US$4.1bn (-15%), US$7.4bn (+3%), US$10bn (+17%) and US$4.2bn (+31%) respectively. The Company's financial guidance for the next quarter gives an estimated operating revenue of US$89bn~93bn, up 1%-5% YoY; gross margin is expected to be kept at 38%~38.5%, and the effective tax rate will be 16.5%.
Apple reported strong FQ4 revenue, but missed on FQ1 guidance due to weakness in EMs and adverse currency movements. The company said they did not see weak consumer demand in China in FQ4 but we believe FQ1 guidance may still assume some potential for weaker demand there given ongoing macro uncertainty. As we had expected heading into the print, ASPs were strong (7.5% beat) and we are taking up our ASP numbers for FY19, but reducing our iPhone units estimate. Apple also announced that they will stop providing unit data beginning next quarter though they will begin providing margins for both services and product. We also believe the company is likely to continue to provide segment level active installed base numbers irregularly. Overall, our FY19 EPS declines by 5.5% and we are taking down our 12-month PT to $222 from $240 based on a 16x P/E multiple and our lower earnings forecast. Remain Neutral.
Guggenheim says its all about iPhone ASP
Apple’s Sep-qtr beat on an even higher iPhone ASP +28%Y/Y vs. our +24%Y/Y estimate, and we expect it to beat a conservative Dec-qtr guide again on strong demand for the new XR. But management’s commentary on weaker emerging markets macro, tougher FX and now choice to stop reporting units are all new headwinds for a company that already needs to now start lapping FY18’s big +17%Y/Y jump in iPhone ASPs. We reiterate our BUY and $245 PT but trim our estimates and continue to see AAPL as less of a table-pounder than it was 6-12 months ago as ASPs start to anniversary.
We continue to expect Apple's pricing strategy to drive iPhone revenue growth in F2019. However, we expect deceleration in services revenue going forward, which, along with our expectation for declining iPhone revenue in F2019, prevents a more positive rating of the shares.
Post AAPL 4Q results, there is more uncertainty for the stock. The qtr itself was mixed, with revs and earnings ahead of expectations; however, iPhone units were well below (46.9m vs 49m) but ASPs were higher ($793 vs $729). Services was solid, up 27% y/y adj, with strength in all products and geo’s. 1Q guidance is below expectations (though adj for $2bn FX impact, it’s not quite as bad as first take).
Downtick on emerging market trends & disclosure changes create noise near-term but better ASPs & sustained Services growth support our view of Apple monetizing a loyal & increasingly engaged user base. Lower PT to $226 on slightly lower revenue from FX headwind & peer multiple compression.
Nomur - neutral quarter
Apple (AAPL US, Neutral; covered by Jeffrey Kvaal, Instinet, LLC) released 4QFY18 (Sep-Q) results, with revenue of USD62.9bn (+18% q-q, +20% y-y; Fig. 2) and EPS up 41% y-y. Sep-Q sales surpassed the high end of its own guidance range of USD60-62bn (Fig. 1). We note that sales grew y-y across all regions, with Americas +19%, Europe +18% and Greater China +16% y-y. The y-y revenue growth was mainly driven by: 1) higher-than-expected iPhone ASP (+28% y-y); 2) strong service revenue (+27% y-y excluding a one-time favourable accounting adjustment last year); and 3) strong wearables revenue growth (over 50% y-y).