Why Apple’s Stock Traded Down Post-Q4 Earnings

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Apple (NASDAQ:AAPL) published its fiscal Q4 results on Thursday, beating market expectations on earnings and revenues, driven by strong iPhone and Services revenue growth. However, the stock declined following the earnings release, as iPhone shipments and holiday guidance fell short of market expectations.  Below we provide some of the key takeaways from the company’s earnings.

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iPhone Revenue Growth Driven By Pricier Devices

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While iPhone shipments remained about flat year-over-year, with 46.9 million units shipped, revenues grew by a robust 29% to $37.2 billion, driven by pricier devices such as the iPhone XS and XS Max. Apple’s average selling prices for iPhones soared to an all-time high of $793 from $618 a year ago. The trend of saturating volumes and rising ASPs could turn out to be secular in nature, as Apple indicated that it would stop providing shipments data for its major devices including the iPhone going forward, in a major departure from the company’s long-standing practice. That said, we believe that Apple could see some year-over-year volumes growth over the holidays, driven by the lower-priced iPhone XR which went on sale late last month. However, the device could marginally impact ASPs, considering its $749 starting price.

Services And Wearable Products

Apple’s Services business has seen solid growth, with revenues rising by 17% from last year to $10 billion, although the growth rate has moderated a little. The growth was driven primarily by a soaring number of paid subscriptions on its platforms (up 50% year-over-year to 330 million) from which Apple takes a commission, as well as higher sales on the App Store. Apple’s wearable products – which include the Apple Watch, AirPods and Beats products – saw revenues rise by over 50% driven by the new Apple Watch Series 4, which is priced at a premium to older models.

Apple’s Guidance

Apple has guided for revenues of between $89 billion and $93 billion for Q1 FY 2019, with gross margins projected to come in at between 38% and 38.5%. The guidance seems somewhat light, marking a 3% year-over-year increase at the midpoint, considering that Apple’s entire lineup ranging from its iPhones to iPads and Macs have seen significant upgrades in recent months. However, the company noted that the guidance was weighed down partly by foreign exchange headwinds, with a stronger dollar likely to have a $2 billion impact on its December quarter revenues.

What Drove Apple’s Operating Profit Growth For the Quarter?

 

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