Apple revenue should continue to shrink, so why is the stock up? – MarketWatch

49
214
Apple revenue should continue to shrink, so why is the stock up? – MarketWatch

Apple Inc. posted a sharp decline in revenue for its holiday quarter. That wasn’t a surprise.

What follows might be. The company issued a weaker-than-expected sales forecast for the current quarter, suggesting that the slowdown in iPhone sales might lead to meaningful revenue declines moving forward as well.

Analysts already expected small revenue declines for every quarter of the current fiscal year before Apple

AAPL, -1.04%

 issued its March-quarter outlook on Tuesday, calling for revenue of $55 billion to $59 billion for the quarter, compared with the FactSet consensus of about $59 billion and the previous year’s total of $61.1 billion.

Live blog recap: Apple earnings send stock higher

That type of sales decline trend would typically not result in a stock bouncing higher, but Apple stock rose more than 5% in after-hours trading, leaving one question: Why?

Wedbush analyst Daniel Ives cited three reasons in a telephone conversation Tuesday afternoon, starting with the revenue forecast. While it came in below analysts’ consensus expectations, Ives said it was still higher than the market feared.

“There was fear that they could guide to a sub-$55-billion number,” Ives contended.

The other two factors both had to do with Apple’s services business, which the company has stressed as iPhone sales have stagnated. While iPhone revenue declined 15% from the last holiday-shopping quarter, software and services revenue increased more than 19% after normalizing for a change in revenue-recognition rules. Ives pointed to two specific services disclosures from Apple: the gross profit margin and the number of users paying for subscriptions.

See also: Here’s how hard China’s slowdown could hit global economic growth

Gross margin for the services business was the peace offering Apple offered while taking away unit sales of specific products like the iPhone, trading out a metric that would not look good for Apple for one that does. Apple said that its gross margin for services like Apple Music, iCloud and Apple Pay was 63% in the quarter, which Ives said was better than expected.

“The line in the sand was 60% gross margins,” said the analyst, who has an outperform rating on Apple shares with a $200 price target. “The services business may have been something [investors] were underestimating in terms of just how profitable it is.”

Ives compared it to Amazon.com Inc.

AMZN, -2.69%

  breaking out the performance of its cloud-computing division, which also offered a peek at a higher-margin business that was being diluted by a much larger core business with lower margins.

“When Amazon broke out AWS margins, that was a defining period for Amazon, because investors then started to give them more credit,” he said.

For more: The engine for Amazon earnings growth has nothing to do with e-commerce

The type of revenue Apple is collecting through those businesses makes a big difference as well. Ives pointed to the number of paid subscriptions Apple has as an important disclosure, since that is a recurring revenue source that is more predictable, a key factor for Apple as iPhone users on average wait longer before buying a new phone.

”We now have over 360 million paid subscriptions across our services portfolio, an increase of 120 million versus a year ago,” Chief Financial Officer Luca Maestri disclosed on Tuesday’s conference call. “Given the continued strength and momentum in this part of the business, we now expect the number of paid subscriptions to surpass half a billion during 2020.”

BTIG analyst Water Piecyk pointed at a different figure in Apple’s forecast, for overall gross margin of 37% to 38%, signalling profitability will not decline along with revenue.

“The good news is that the lower revenue guidance, likely in part driven by price cuts in certain markets, did not result in weak gross margin guidance, another relief to investors fearing the worst,” Piecyk wrote, while subtracting $6 billion in 2019 iPhone sales from his estimates due to the weak forecast. He also shaved his price target to $189 from $197 in a Tuesday evening note

Overall, Apple’s stock jump in late trading Tuesday feels like a relief rally, as investors received information that was not as bad as was feared amid a 27% decline over the past three months, a period in which the S&P 500 index

SPX, -0.15%

  was basically break-even. That type of rally may not last long, however, as it completely depends on Apple living up to what it promised on Tuesday.

”Now it comes down to that March guidance — it is imperative they hit,” Ives said, noting the big miss on the original holiday-quarter forecast that required Apple’s early warning. “There is a big credibility issue in terms of them predicting iPhone sales.”

Updated with additional analyst commentary.

Want this type of analysis sent to your inbox? Subscribe to MarketWatch’s free MarketWatch First Takes newsletter. Sign up here.

49 COMMENTS

  1. I just want to say I’m all new to blogging and site-building and absolutely liked your website. Very likely I’m going to bookmark your blog post . You surely have beneficial articles. Kudos for sharing your website.

  2. I like the helpful info you supply for your articles. I’ll bookmark your weblog and check once more right here regularly. I am moderately certain I’ll learn a lot of new stuff proper here! Best of luck for the next!

  3. I like what you guys are up too. Such intelligent work and reporting! Carry on the excellent works guys I have incorporated you guys to my blogroll. I think it will improve the value of my site :).

  4. Can I just say what a aid to seek out somebody who actually knows what theyre speaking about on the internet. You definitely know how one can bring a problem to light and make it important. More individuals have to read this and understand this side of the story. I cant consider youre no more well-liked since you positively have the gift.

  5. Nice read, I just passed this onto a colleague who was doing some research on that. And he actually bought me lunch as I found it for him smile Thus let me rephrase that: Thank you for lunch!

  6. I carry on listening to the news broadcast speak about receiving free online grant applications so I have been looking around for the most excellent site to get one. Could you advise me please, where could i find some?

  7. Can I recently say such a relief to get somebody who truly knows what theyre preaching about on the net. You actually have learned to bring a concern to light and make it important. The diet must check out this and can see this side on the story. I cant think youre not more well-liked since you also definitely possess the gift.

  8. Usually I don’t read article on blogs, however I wish to say that this write-up very pressured me to try and do it! Your writing taste has been amazed me. Thanks, very nice article.

  9. This would be the right blog for anyone who desires to find out about this topic. You know a whole lot its practically difficult to argue along with you (not that When i would want…HaHa). You certainly put a new spin on the topic thats been discussing for years. Fantastic stuff, just fantastic!

  10. Can I just say what a relief to find someone who actually knows what theyre talking about on the internet. You definitely know how to bring an issue to light and make it important. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.

  11. A person necessarily lend a hand to make critically posts I would state. This is the very first time I frequented your web page and so far? I amazed with the research you made to make this actual submit extraordinary. Great job!

  12. Hmm it seems like your blog ate my first comment (it was extremely long) so I guess I’ll just sum it up what I had written and say, I’m thoroughly enjoying your blog. I too am an aspiring blog blogger but I’m still new to everything. Do you have any suggestions for inexperienced blog writers? I’d really appreciate it.

  13. Thanks for your publication. I also think laptop computers have grown to be more and more popular these days, and now are sometimes the only form of computer used in a household. This is due to the fact that at the same time that they are becoming more and more inexpensive, their computing power is growing to the point where they may be as powerful as personal computers through just a few years back.

  14. Sapid Agency is a Search Engine Optimization company in New York City that provides SEO Services. Their proprietary SEO strategies help struggling websites and aspiring business owners to rank their websites higher in multiple search engines like Google , Yahoo and Bing. They provide local and gmb map ranking for businesses in NYC and many other local areas. Find more at https://www.sapidagency.com/ @ 145 E 57TH NEW YORK, NY 10022, USA, +1 971 341 5608 USA

  15. Sapid Agency is a Search Engine Optimization company in New York City that provides SEO Services. Their proprietary SEO strategies help struggling websites and aspiring business owners to rank their websites higher in multiple search engines like Google , Yahoo and Bing. They provide local and gmb map ranking for businesses in NYC and many other local areas. Find more at https://www.sapidagency.com/ @ 145 E 57TH NEW YORK, NY 10022, USA, +1 971 341 5608 USA

  16. Have you ever considered about adding a little bit more than just your articles? I mean, what you say is fundamental and everything. Nevertheless just imagine if you added some great graphics or video clips to give your posts more, “pop”! Your content is excellent but with pics and clips, this website could undeniably be one of the very best in its field. Wonderful blog!

  17. Faytech North America is a touch screen Manufacturer of both monitors and pcs. They specialize in the design, development, manufacturing and marketing of Capacitive touch screen, Resistive touch screen, Industrial touch screen, IP65 touch screen, touchscreen monitors and integrated touchscreen PCs. Contact them at http://www.faytech.us, 121 Varick Street, New York, NY 10013, +1 646 205 3214.

  18. Hiya, I am really glad I have found this info. Nowadays bloggers publish only about gossips and internet and this is really irritating. A good site with interesting content, this is what I need. Thanks for keeping this web site, I will be visiting it. Do you do newsletters? Can not find it.

  19. Pretty section of content. I just stumbled upon your site and in accession capital to assert that I acquire in fact enjoyed account your blog posts. Anyway I’ll be subscribing to your feeds and even I achievement you access consistently fast.

  20. When I originally commented I clicked the “Notify me when new comments are added” checkbox and now each time a comment is added I get three emails with the same comment. Is there any way you can remove me from that service? Thanks a lot!

  21. This design is incredible! You definitely know how to keep a reader entertained. Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!) Great job. I really loved what you had to say, and more than that, how you presented it. Too cool!

  22. Hi, Neat post. There’s a problem with your web site in internet explorer, would check this… IE still is the market leader and a good portion of people will miss your wonderful writing due to this problem.

  23. Whats up this is kinda of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding experience so I wanted to get guidance from someone with experience. Any help would be enormously appreciated!

  24. you’re in reality a excellent webmaster. The site loading velocity is amazing. It kind of feels that you’re doing any unique trick. Also, The contents are masterwork. you’ve done a great task on this matter!

  25. Hello there, simply was aware of your blog through Google, and located that it is really informative. I am going to be careful for brussels. I’ll be grateful if you happen to proceed this in future. Lots of folks might be benefited from your writing. Cheers!

  26. Hi there, You’ve done an incredible job. I will definitely digg it and personally suggest to my friends. I am confident they will be benefited from this site.

  27. Somebody necessarily lend a hand to make severely articles I would state. This is the first time I frequented your web page and so far? I surprised with the analysis you made to make this particular put up extraordinary. Great process!

  28. Appreciate you for sharing all these wonderful articles. In addition, the ideal travel plus medical insurance approach can often relieve those problems that come with visiting abroad. The medical emergency can rapidly become very costly and that’s sure to quickly slam a financial load on the family’s finances. Setting up in place the great travel insurance deal prior to leaving is definitely worth the time and effort. Thanks a lot

LEAVE A REPLY

Please enter your comment!
Please enter your name here