With Apple the last remaining hope to bring back some enthusiasm for the flagging FAANG/growth sector - and perhaps overall market - investors were focused on three key things that Apple would report in its earnings report today: i) whether the average selling price of its iPhone would remain above $700 (and continue rising), indicating continued demand for its top-end products; ii) whether Apple services would remain a source of continued strong growth even as iPhone unit sales appear to have plateaued in recent quarters, and iii) most importantly, Apple's guidance for the all-important holiday quarter will be to gauge the success of the new iPhones and especially the lower-priced XR model.
With that in mind, here's what Apple reported moments ago.
In the fourth fiscal quarter, Apple sold 46.9MM iPhones, well below analyst estimates of 48.4MM with iPad unit sales of 9.8 million also missing expectations, even as it beat on the bottom and top line, reporting Q3 EPS of $2.91, vs Exp. $2.78 on revenue of $62.9BN, and also beating expectations of $61.44BN. More good news from Tim Cook: the average selling price of its iPhones soared to $793, up from $618 a year ago, and smashing analyst expectations of $729.
But the main reason why the stock is sliding in after-hours trading is that Apple's holiday quarter guidance was somewhat soft, at $89BN-$93BN, with the midpoint below the analyst estimate of $92.74BN.
A summary of key metrics from the fourth fiscal quarter:
- Q4 EPS: 2.91BN, beating Exp. $2.78
- Revenue: $62.9BN, beating Exp. $61.44 billion
- iPhone sales: 46.9 million, missing Exp. 48.4 million
- iPad sales: 9.8 million, missing Exp. 10.5 million, and down from 10.3 million a year ago
- Mac sales: 5.3 million, beating Exp. 4.9 million, and down from 5.4 million a year ago
- iPhone ASP: $793, up from $618, smashing Exp. $729
- Guidance for holiday quarter revenue: $89-$93billion, with the midline below Wall Street estimates of $92.74 billion
Of the above, the last items most important according to Morgan Stanley analyst Katie Huberty, who said that: "Guidance will be the most important driver of investor sentiment as it provides the first read on iPhone XR demand." And judging by the market's reaction, the company's guidance could have been better.
Going back to the point about peak iPhone sales which emerged first last quarter, Q4 iPhone sales were nearly the same as the fourth quarter last year despite the new flagship iPhone not launching until the holiday quarter. That, according to Bloomberg, means unit sales are flat despite there being new flagship iPhones this year and not last year. "That could be concerning to investors as well." Meanwhile, both iPad and Mac sales continues to decline, perhaps as a result of the company's recent price hikes.
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Another red flag: Apple's latest revenue prediction would represent growth of "only" 3% year over year, ending a streak of five-straight quarters of double-digit percentage gains and is lower than analysts estimates which called for an expansion of 5%.
Other observations: Apple's "Other Products" category - which includes the Apple Watch and AirPods - blew it out of the water with $4.2 billion in revenue, growing 13% from Q3 and 31% year over year, suggesting that the new Apple Watch may be enjoying a bit of a renaissance (although it is unlikely that products like the HomePod helped much).
Apple's Service revenue jumped again and was just shy of $10 billion, or $9.981BN to be exact, up from $9.548BN last quarter, and up 17.4% Y/Y (as growth slowed from last quarter's 30.8%).
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As Bloomberg further adds, Look for much of the same next quarter: revenues making up for slowing unit sales growth. This fourth quarter only includes about a week of iPhone XS and XS Max sales, so we'll get the full picture when they report Q1 2019 either in late January or early February. It'll be the same for the Macs and iPads too, in all likelihood, which earlier this week got nice price jumps too.
To be sure, Tim Cook was euphoric as usual:
“We’re thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple’s history”, Cook said. “We enter the holiday season with our strongest lineup of products and services ever”.
So far, however, the market does not share his sentiment, with the stock down over 4% after hours.
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