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

81
323
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.

81 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

  29. Today, considering the fast life-style that everyone is having, credit cards get this amazing demand throughout the economy. Persons throughout every area of life are using credit card and people who aren’t using the credit cards have made arrangements to apply for one. Thanks for spreading your ideas about credit cards.

  30. Most of whatever you state happens to be astonishingly accurate and that makes me wonder why I had not looked at this with this light before. This piece really did switch the light on for me personally as far as this topic goes. But at this time there is one particular issue I am not too cozy with so while I make an effort to reconcile that with the actual central idea of the issue, permit me observe what the rest of your readers have to point out.Nicely done.

  31. Pretty section of content. I just stumbled upon your website and in accession capital to assert that I get in fact enjoyed account your blog posts. Any way I will be subscribing to your feeds and even I achievement you access consistently rapidly.

  32. I have been browsing online more than three hours today, but I never found any fascinating article like yours. It’s lovely worth enough for me. In my opinion, if all web owners and bloggers made just right content as you did, the net can be a lot more helpful than ever before.

  33. Good web site! I truly love how it is easy on my eyes and the data are well written. I’m wondering how I might be notified whenever a new post has been made. I’ve subscribed to your feed which must do the trick! Have a great day!

  34. I’m not sure where you are getting your info, but good topic. I needs to spend some time learning much more or understanding more. Thanks for wonderful information I was looking for this information for my mission.

  35. I have learn some excellent stuff here. Certainly price bookmarking for revisiting. I wonder how so much attempt you place to make any such excellent informative site.

  36. Very nice post. I just stumbled upon your blog and wished to say that I have really enjoyed surfing around your blog posts. In any case I’ll be subscribing to your rss feed and I hope you write again very soon!

  37. Thank you for the sensible critique. Me & my neighbor were just preparing to do some research on this. We got a grab a book from our area library but I think I learned more from this post. I’m very glad to see such great information being shared freely out there.

  38. I have seen lots of useful factors on your web site about computer systems. However, I have got the impression that laptop computers are still less than powerful more than enough to be a good selection if you usually do things that require a great deal of power, for instance video editing and enhancing. But for world-wide-web surfing, microsoft word processing, and a lot other common computer work they are all right, provided you don’t mind your little friend screen size. Many thanks for sharing your thinking.

  39. I’m as you could probably teach a class concerning how to produce a great blog. This is fantastic! I need to say, what really got me was your design. You understand how to make your blog not just a rant about an issue. Youve made it possible for individuals to connect. Healthy, because not too many individuals know what theyre doing.

  40. You really make it seem so easy with your presentation but I find this matter to be really something which I think I would never understand. It seems too complex and very broad for me. I am looking forward for your next post, I will try to get the hang of it!

  41. Great work! This is the type of info that should be shared around the web. Shame on the search engines for not positioning this post higher! Come on over and visit my site . Thanks =)

  42. I really wanted to type a small remark in order to express gratitude to you for some of the splendid information you are giving on this site. My time consuming internet lookup has now been recognized with extremely good details to exchange with my pals. I would suppose that most of us visitors actually are really endowed to exist in a very good website with so many wonderful professionals with very beneficial guidelines. I feel extremely blessed to have come across the web page and look forward to plenty of more fabulous times reading here. Thanks once more for a lot of things.

  43. Heya this is kinda of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding expertise so I wanted to get advice from someone with experience. Any help would be greatly appreciated!

  44. I and my guys have been taking note of the nice procedures found on your web page and then all of the sudden developed a terrible suspicion I had not expressed respect to the site owner for those strategies. These men were definitely absolutely stimulated to study them and have in effect undoubtedly been making the most of them. I appreciate you for being simply helpful and also for settling on certain brilliant information most people are really wanting to discover. Our own sincere apologies for not saying thanks to you earlier.

  45. Thanks a bunch for sharing this with all of us you really realize what you are speaking about! Bookmarked. Kindly additionally consult with my website =). We will have a hyperlink change agreement among us!

  46. k7ybeB You made some really good points there. I checked on the net for more information about the issue and found most people will go along with your views on this web site.

  47. In the awesome scheme of things you’ll secure a B+ with regard to effort. Where exactly you misplaced us ended up being in all the specifics. You know, people say, the devil is in the details… And it could not be more accurate in this article. Having said that, allow me inform you just what did do the job. Your writing is definitely really powerful and this is probably the reason why I am making the effort in order to opine. I do not make it a regular habit of doing that. Secondly, despite the fact that I can easily notice a leaps in reason you make, I am not really certain of how you appear to connect your details which help to make your final result. For the moment I will, no doubt subscribe to your issue but trust in the near future you actually connect the facts much better.

  48. Wow that was odd. I just wrote an very long comment but after I clicked submit my comment didn’t show up. Grrrr… well I’m not writing all that over again. Regardless, just wanted to say wonderful blog!

LEAVE A REPLY

Please enter your comment!
Please enter your name here