Following the bell on Thursday, we received third-quarter fiscal results from Apple’s technology giant (AAPL) for its period ending in June. For the past few months, there has been a lot of uncertainty around the name, as the coronavirus pandemic has led the administration to maintain any formal guidance. While shares rallied heavily in this report, a breakout report along with a notice of a split share sent the stock to a new level in trading after hours.
So much for all those worries about Apple’s revenue declining over the previous year’s period. As the table below shows, the five main revenue segments showed growth in the respective Q3 2019 results. Management had actually called for a decent drop in iPhone revenue, so the 1.7% increase was actually a pleasant surprise. All other segments showed double-digit increases, led by the iPad with more than 31% growth and the Mac approaching 22%. Perhaps the only disappointment here was the service segment, which came in only about or slightly below most analysts ’estimates. The Dollar values below are in millions in addition to the amounts per share.
(Source: Q3 earnings report linked above and Apple IR site, shown here)
Service margins showed an impressive increase of 309 basis points, while product margins continued their downward trend. A power of more than $ 7 billion on the top line would obviously filter through to the revenue report. The lower tax rate along with the buy-back certainly helped bring the EPS figure to more than 50 cents down the road. Even with a number of analyst estimates rising in recent weeks, this report was one of the best we’ve ever seen from the company.
As most expected, the Apple administration did not provide any guidance for the fiscal Q4 period that ended in September. However, there has been confirmation that the launch of the iPhone will be delayed a bit, in the sense that there are no new phones available until early to mid-October. I’m sure analysts will rush to raise estimates considerably after this huge Q3 beat, but we could see revenue / earnings lose next time around if expectations rise too high.
As we look at the stock itself, management has slowed the repression slightly, buying only about $ 16 billion in shares. I mentioned this possibility in my forecast article, that the huge rally could cause some conservatism. The surprise here was that a four-for-one split was announced, which will send back the current number of outstanding shares much higher, but Apple shares will then go down to about $ 100 and more based on prices current. Interestingly enough, that will actually cause Apple’s weight in the Dow Jones Industrial Average (“Dow 30”) to decline, since that index is based on the share price.
Apple shares jumped $ 400 in the after-hours session, stopping all the time new in the process, and there will be many analysts who don’t look good as a result. The stock entered this earnings report above the average price target on the Street, with many analysts having targets in the low to mid-$ 300 range. We will certainly see a lot of marked targets after this report, and the split stock is likely to lead to a few more purchases. While we’ll have to wait a little longer than usual for the next set of iPhone launches, Apple has put to bed this week any fears that the business has been really hurt by the coronavirus.
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