Reviewing Apple’s 4Q24: What Is Apple’s “Real” Growth Rate?
Hello everyone.
Welcome to a new week. Much of our focus this week will be given to reviewing Apple’s earnings. As we discussed last Friday, even though results were close to my estimates, there is value found in drilling down into some of the numbers and specific business lines.
In addition to picking apart Apple’s earnings conference call, we will try something a little bit different this earnings review cycle by addressing a few Apple questions that have generated buzz within financial circles. One such topic will drive today’s discussion: Apple’s growth rate.
Things are a bit crazy here in the U.S. with the presidential election taking place today. Depending on when a winner is called, we will interrupt our earnings review to go over my thoughts on potential Apple impacts.
Let’s jump in.
Reviewing Apple’s 4Q24: What Is Apple’s “Real” Growth Rate?
Last Thursday, Apple reported $94.9B of revenue for 4Q24. The figure represented 6.1% growth. My expectation was that Apple would slightly beat its guidance commentary (i.e. growth was said to be close to 4.9%).
An Above Avalon membership is required to continue reading this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)
Above Avalon Membership
Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions.
Contact me directly if you would like to purchase multiple subscriptions (five or more) for your team or company.
An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.
The Redesigned Mac Mini, The Setup Facing Apple Ahead of 4Q24 Earnings
Hello everyone. Today's update will kick off with new Apple product news, followed by the start of our Apple 4Q24 earnings preview. The earnings talk will flow into tomorrow’s update.
Let’s jump right in.
The Redesigned Mac Mini
Day 2 of Apple’s Mac week was all about the Mac mini (and M4 Pro chip).
Before we get to the device, Apple’s strategy of breaking up its Mac announcements into multiple days is striking me as a good one.
Each announcement is getting much more play on social media versus combining the announcements into one event or update. Such a strategy won’t work though for in-person Apple events when various products announcements are combined to take advantage of the press being on site. For non-event releases that involve multiple products, breaking up the news into individual announcements, complete with taped presentations, makes sense to me. We will see if this is something that Apple will look to replicate in the future.
As for the updated Mac mini, you can tell
An Above Avalon membership is required to continue reading this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)
Above Avalon Membership
Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions.
Contact me directly if you would like to purchase multiple subscriptions (five or more) for your team or company.
An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.
Apple’s 3Q24 in Three Charts
Hello everyone.
While recording the podcast episode for yesterday’s update, it occurred to me that one part of our discussion could have benefited from a bit more explanation. While such explanation was added to the podcast, which does routinely happen when episodes are recorded, to ensure everyone received the explanation, the following passage was from yesterday’s update:
“Back in 2019, [Warren] Buffett trimmed a very small part of Berkshire’s Apple stake. When asked why, Buffett didn’t actually provide an answer other than to say Berkshire’s overall stake in Apple continues to move higher due to Apple's buyback program.”
Since Apple is retiring the shares that it repurchases, the overall number of shares outstanding has been declining. This means that each remaining outstanding share is entitled to a larger share of Apple’s future cash flow (and business). If Berkshire didn’t buy or sell any additional AAPL shares, their stake in Apple would gradually rise thanks to Apple’s buyback program.
If we assume that Buffett cuts Berkshire's AAPL stake so that it’s slightly larger than the next largest equity holding (say $30B fair value at 140M shares), that would equate to 0.9% of Apple. Over time, assuming Apple continues to buy back shares and Berkshire doesn’t sell any more shares, that Apple ownership percentage will rise. The buyback is a major reason why Buffett finds AAPL shares attractive.
We will continue our Apple 3Q24 earnings review. Let's jump in.
Apple’s 3Q24 in Three Charts
Last Friday, we went over how Apple’s 3Q24 earnings compared to my expectations. Results came in close to my estimates. Nearly every line item beat (HW gross margin was the only thing that missed).
We also discussed the largest takeaway from earnings: iPhone fundamentals continue to gradually improve and are becoming less of a drag on Apple's overall ecosystem growth.
Turning our attention to secondary themes from earnings, there were three:
An Above Avalon membership is required to continue reading this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)
Above Avalon Membership
Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions.
Contact me directly if you would like to purchase multiple subscriptions (five or more) for your team or company.
An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.
Apple’s Installed Base Growth, Apple's Paid Subscriptions Growth, A More Effective Apple Growth Narrative for Wall Street
Last Friday’s update kicked off our Apple 1Q24 earnings review. When it comes to Apple’s financial story, trends are tracking close to Neil’s expectations. For today, we will take a closer look at one takeaway from earnings: Apple’s ecosystem growth.
An Above Avalon membership is required to read this update. Members can read the full update here. (Members: Daily Updates are accessible via the archive. If you haven’t logged into the archive before, fill out this form to receive an invite.)
Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time.
An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-on.
Three Interesting Charts for Apple's 4Q23
Hello everyone. Welcome to Monday and a new week. We will continue our Apple 4Q23 earnings review.
Like last quarter, we will focus on three charts that go a long way in summarizing Apple’s current financial trends. We will cover the granular takeaways from Apple's 4Q23 earnings call in tomorrow’s update.
As a reminder, if you have questions about Apple’s earnings, please send them way. The questions can be covered as we proceed through the earnings review.
Three Interesting Charts for Apple's 4Q23
1) HW vs. Services Gross Profit Growth
Over the years, we have had various opportunities to compare key financial differences between Apple HW and Apple Services.
The former is heavily influenced by upgrading trends. For Apple to report HW revenue growth, the company needs to replace all of the revenue from the prior period just to be in a position to then grow. For products like iPhone, upgrading is responsible for approximately 75% of revenue. The percentage is lower – closer to 50% - for Mac and iPad.
During the pandemic, Apple device upgrading was strong as work from home and online/distance learning drove interest in new(er) devices. This benefit extended to companies paying for their employees to have the latest computing devices (at home).
Over the past 12 to 18 months, device upgrading has slowed across the industry.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
My 4Q23 Apple Estimates, Early Thoughts on Apple’s 1Q24, My Current Apple Earnings Model
Apple reports FY4Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for estimates related to Apple’s product categories. We then look at Neil’s expectations for what Apple will say about guidance (FY1Q24). We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.
Hello everyone. Welcome to November.
We will continue our Apple 4Q23 earnings preview with a look at my granular estimates. The update also includes a few thoughts on Apple’s FY1Q24 guidance and my updated earnings model.
In keeping with our usual practice, tomorrow’s update (Thursday) will be pushed back a day so that we have a special Friday edition of the update to review Apple’s earnings. Apple will release earnings Thursday at 4:30 pm ET.
My 4Q23 Apple Estimates
Here are my granular estimates for Apple’s 4Q23:
Revenue: $88.9B (consensus: $84.2B)
Overall gross margin: 44.9% (guidance: 44% to 45%)
Gross margin (HW): 36.7%
Gross margin (Services): 70.7%
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple 3Q23: By the Numbers, The Most Impressive Apple Number, About That Weak iPad Number
Today's special Friday edition of the Daily Update will be focused on reviewing Apple’s earnings. The idea is to keep things broad and look at the big picture takeaways. We also examine how Apple’s results compared to Neil’s expectations. The discussion will continue next week.
Hello everyone. We will begin reviewing Apple's FY3Q23 results. Let's jump right in.
Apple 3Q23: By the Numbers
The themes that guided the past few quarters for Apple were present in the company’s FY3Q23 results. Emerging markets strength is being offset by a slowdown in iPhone upgrading in the U.S. Meanwhile, solid Services revenue generation is being offset by weak Mac and iPad results. The result is mostly flat revenue growth with FX continuing to serve as a growth headwind (Apple’s FX hedging program creates a lag in receiving any weaker dollar benefit).
This past Monday, we went over three factors that point to FY2024 being a better one for Apple financially. Following Apple’s FY3Q23 results and earnings call, there has been no change in my thinking.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
My FY3Q23 Apple Estimates, Early Thoughts on Apple’s FY4Q23
Apple reports FY3Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for each of Apple’s product categories. We then look at Neil’s expectations for what Apple will say about guidance (FY4Q23).
Hello everyone. Welcome to August.
We will continue our Apple 3Q23 earnings preview with a look at my granular estimates. The update will conclude with a few thoughts on what Apple may say regarding 4Q23 guidance. My updated earnings model will be available in tomorrow’s update.
My 3Q23 Apple Estimates
Here are my granular estimates for Apple’s 3Q23:
Revenue: $82.0B (consensus: $81.6B)
Overall gross margin: 44.4% (guidance: 43.5% to 44.5%)
Gross margin (HW): 35.7%
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Setting the Stage for Apple’s FY3Q23 Earnings
Apple reports FY3Q23 earnings (results from April to June) later this week. Today’s update includes Neil’s big picture thoughts heading into Apple’s earnings.
Happy Monday.
Apple reports earnings on Thursday. For those of you who may be new to Above Avalon membership, I wanted to quickly discuss the typical game plan for Apple earnings coverage.
Prior to Apple’s earnings release, we go over my expectations for what will be announced. These expectations cover both qualitative and quantitative items. Expectations are important given the role they play in adding context to a company’s results. My Apple earnings previews typically extend across two, possibly three, updates.
Once Apple reports earnings, we will then go over everything there is to say about the release, the earnings conference call, and even the 10-Q or 10-K. By the end of the process, we have a comprehensive overview of both Apple’s results for the prior three months and analysis of guidance for the current quarter.
Today, we will kick off my Apple earnings preview with an overview of the setup heading into Thursday’s release.
Setting the Stage for Apple’s FY3Q23 Earnings
Over the next few months, the setup is becoming more positive for Apple’s financial results. My expectation is that when Apple reports earnings on Thursday, we will begin to see and hear the early signs of this improvement. Apple’s guidance for FY4Q23 could still point to the business facing macro pressures, but that would then clear the deck in a way for an all-around better FY2024.
There are three factors behind this “improvement on the horizon” theme:
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple’s Paid Subscriptions Growth Reaccelerates, The Case for Higher Apple Gross Margins
Hello everyone.
We will conclude our Apple earnings review by looking at Apple’s paid subscriptions growth and gross margins. There are a few follow-ups that we have not covered yet. The discussion includes Neil’s thoughts on why Apple’s gross margins still have room to move higher.
Let’s jump right in.
Apple’s Paid Subscriptions Growth Reaccelerates
In keeping with its usual disclosure, Apple provided updated comments regarding the number of paid subscriptions across the Apple ecosystem.
Based on Apple’s commentary, here are my estimates for the number of paid subscriptions across Apple’s ecosystem (first party and third party) on a quarterly basis:
1Q20: 482M paid subscriptions
2Q20: 518M
3Q20: 553M
4Q20: 588M
1Q21: 623M
2Q21: 663M
3Q21: 705M
4Q21: 749M
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Reading Between the Lines of Apple’s 2Q23 Earnings Q&A With Analysts (Daily Update)
Hello everyone. Welcome to a new week.
Last Friday, we went over the numbers from Apple’s 2Q23 earnings release. We also looked at two of the major themes from earnings: the impact from less device upgrading and Apple’s emerging markets strength.
In today’s update, we will focus on Apple’s earnings Q&A session with analysts. After recapping each question-and-answer exchange that occurred on the call between Apple and sell-side analysts, we will go over my thoughts / response to the exchange. Let’s go beyond what was talked about on the call.
NOTE: The following earnings call questions (“Q (Sell-Side Firm)”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, MarkerBeat offers a written transcript here.
iPhone
Q (Morgan Stanley): Did Apple experience iPhone demand deferral or destruction arising from the COVID shutdowns in late 2022?
Cook: Our 2Q23 results reflected some iPhone demand carryover from 1Q23. iPhone production is back where we want it to be.
My response: Recall our discussion heading into earnings about two variables driving iPhone sales in 2Q23: Underlying customer demand and a sales carryover from 1Q23 related to COVID shutdowns. Cook’s answer implies that
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
My Apple 2Q23 Estimates, Expectations for Apple's Capital Management Changes, My Revised Apple Earnings Model (Daily Update)
Apple reports FY2Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for each of Apple’s product categories. We then look at Neil’s expectations for what Apple will announce regarding its cash dividend and share repurchase authorization. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.
Hello everyone. Similar to previous quarters, with Apple releasing earnings tomorrow, Thursday’s update will be pushed out a day so that there is a special edition Friday version of the daily update.
Let’s jump into the second half of my earnings preview.
My Apple 2Q23 Estimates
Here are my granular estimates for Apple’s 2Q23:
Revenue: $95.7B (consensus: $93.0B)
Overall gross margin: 44.6% (guidance: 43.5% to 44.5%)
Gross margin (HW): 37.5%
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple 1Q23: By the Numbers, The FX Factor, My Apple Earnings Theory (Daily Update)
Hello everyone. Today's special Friday edition of the Daily Update will be focused on reviewing Apple's earnings. The idea is to keep things broad and look at the big picture. We also examine how Apple’s results compared to Neil’s expectations. The earnings discussion will continue next week. Let's jump right in.
Apple 1Q23: By the Numbers
We knew 1Q23 was going to be a noisy quarter for Apple. Along those lines, we didn’t get too many surprises. Results were all over the place. iPhone results missed my estimate by $5.0B while iPad beat by $1.5B.
Heading into earnings, the questions were found with Apple’s 2Q23 guidance. This is where management commentary
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Final Thoughts Heading Into Apple Earnings, Spotify Earnings (Daily Update)
Hello everyone. On Monday, we went over my expectations heading into Apple’s earnings tomorrow. We also talked briefly about my thoughts on what Apple may say about FY2Q23. Yesterday’s update included my granular financial estimates and updated Apple earnings model. One item that has been on my mind is that noise found with tomorrow’s earnings may drown out the numbers and topics that should grab attention. In today’s update, we go over those key earnings items to keep an eye on tomorrow. The discussion then turns to Spotify’s 4Q22 earnings.
Final Thoughts Heading Into Apple Earnings
One item that has been on my mind is that noise found with tomorrow’s earnings may drown out the numbers and topics that should grab attention.
iPhone strength. As alluded to in yesterday's update, earnings recap headlines will probably be focused on
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Setting the Stage for Apple 1Q23 Earnings, About AAPL’s Move Higher, Looking Ahead at Apple’s 2Q23 (Daily Update)
Hello everyone. Welcome to a new week.
Apple reports FY1Q23 earnings (results from October to December) on Thursday. We kick off today’s update with Neil’s thoughts and expectations heading into Apple’s earnings. The discussion goes over implications found with AAPL’s recent outperformance to the market. The update concludes with some of Neil’s early thoughts regarding how Apple’s 2Q23 (January to March) is trending.
We will go over Neil’s granular Apple financial estimates tomorrow. His revised Apple earnings model will also be ready.
Let’s jump into today’s update.
Setting the Stage for Apple 1Q23 Earnings
Heading into Apple’s earnings release on Thursday, expectations for what Apple will announce remain muted. Even though Apple shares are up 10% so far in 2023, the move doesn’t necessarily correspond with consensus believing Apple’s results and guidance will surprise to the upside. More on that shortly.
Low or muted expectations for Apple’s results may come as somewhat of a surprise. The company’s 4Q22 results were decent. Here was a very quick summary:
“Despite facing major FX headwinds, Apple’s ecosystem remained on track in 4Q22. The company reported all-around solid 4Q22 results. The few areas of weakness (iPad and Services came in below my expectations) were offset by iPhone, Mac, and Apple Watch sales strength.”
While 1Q23 guidance was a tad weak with revenue growth coming in about 200 basis points lower versus my (adjusted) expectations – check out our 4Q22 earnings review here for the details as to how that number was derived - Tim Cook and CFO Luca Maestri sounded
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Inside Apple’s Record Mac Quarter, What’s Going On With iPad Sales?, Charting Apple’s Ecosystem Growth (Daily Update)
In today's update, we will continue our Apple 4Q22 earnings review with a few granular takeaways. In particular, we look beyond the Mac and iPad numbers. Tomorrow, our focus will be geared toward everything that was discussed on management's earnings call.
Inside Apple’s Record Mac Quarter
Apple reported $11.5B of Mac revenue in 4Q22. It was a quarterly record that exceeded my estimate by a significant $1.5B. Prior to 4Q22, the previous Mac revenue record was $10.9B (in 1Q22).
Diving deeper into 4Q22 Mac results, things become more complicated. We may be seeing something equivalent to a near-term plateau, or growth air pocket, for Mac sales.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
The daily updates have become widely read and influential in the world of Apple and technology. They are unmatched in the marketplace in terms of comprehensive analysis and research on all things Apple. Members reside in 60 countries and hold a diverse range of backgrounds and occupations. They include Silicon Valley executives and investors, the largest Apple shareholders, and the leading Apple journalists in the business.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
My Initial Reaction to Apple Earnings, Apple 4Q22: By the Numbers, Breaking Down Apple’s Guidance (Daily Update)
Today’s update will be dedicated to going over Apple’s 4Q22 results and management commentary. The idea is to keep things broad today and look at the big picture, in addition to the financial results. The discussion will continue next week as we move beyond the numbers to look at the granular takeaways.
My Initial Reaction to Apple Earnings
Apple went into this earnings season possessing the most formidable ecosystem of devices and services in the world. Despite facing major FX headwinds, Apple’s ecosystem remained on track in 4Q22. The company reported all-around solid 4Q22 results. The few areas of weakness (iPad and Services came in below my expectations) were offset by iPhone, Mac, and Apple Watch sales strength.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
The daily updates have become widely read and influential in the world of Apple and technology. They are unmatched in the marketplace in terms of comprehensive analysis and research on all things Apple. Members reside in 60 countries and hold a diverse range of backgrounds and occupations. They include Silicon Valley executives and investors, the largest Apple shareholders, and the leading Apple journalists in the business.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple FY3Q22 Earnings Recap
Two weeks ago, Apple reported a solid FY3Q22 (April to June) given the tough year-over-year compare and considerable FX headwind. In terms of good news, supply chain issues, component shortages, and COVID-related headwinds appear to have bottomed for Apple. When it comes to bad news, some parts of Apple’s business are getting hit by inflation and slowing economic growth more than others.
Here are Apple’s reported 3Q22 results versus my expectations with brief commentary for each item.
Revenue: $83.0 (vs. my $85.9B estimate). Results missed my estimate due to a larger than expected headwind from FX, a larger than expected supply shortage with Mac, and macro issues impacting Wearables, Home, and Accessories.
EPS: $1.20 (vs. my $1.25).
iPhone revenue: $40.7B (vs. my $39.9B). That’s a good iPhone revenue number that doesn’t raise any yellow or red flags to me.
Services revenue: $19.6B (vs. my $20.1B). Results missed primarily on a larger than expected headwind from FX.
Wearables / Home / Accessories revenue: $8.1B (vs. my $9.4B). This was a weak number which Apple attributed to a “cocktail of headwinds.”
Mac revenue: $7.4B (vs. my $8.9B). Apple experienced major issues with supply as the Mac was the product category impacted the most by COVID lockdowns closing factories in China.
iPad revenue: $7.2B (vs. my $7.6B). Apple experienced ongoing issues with iPad supply.
Overall gross margin: 43.3% (vs. my 43.3%)
Services gross margin: 71.5% (vs. my 72.0%)
Products (HW) gross margin: 34.5% (vs. my 34.5%)
Breaking down the $2.9B revenue miss to my estimate, there were two primary drivers:
$1.5B revenue miss due to Mac supply not being as good as thought.
$1.3B revenue miss due to weaker Wearables, Home, and Accessories.
Even though Apple missed my (elevated) expectations, the company reported a 3Q22 beat to consensus as revenue came in about $2B stronger than sell-side analysts were expecting. The beat was due to stronger iPhone revenue as most analysts were expecting something more like $36B to $38B of iPhone revenue (vs. the $40.7B reported figure). EPS came in $0.04 above consensus as Apple’s margins came in slightly better than consensus thought as well.
An Above Avalon membership is required to continue reading this article. Members can read the full article here.
The full article includes the following sections:
Apple’s 3Q22: The Key Numbers
iPhone Sales Resiliency
Apple Ecosystem Growth Slows
Reading Between the Lines of Apple’s 3Q22 Earnings Q&A With Analysts
Notes From Apple’s 3Q22 10-Q
Tracking Apple’s Paid Subscriptions
Apple's Share Buyback Update
My Revised Apple Financial Estimates
An audio version of the article is available to members who have the podcast add-on attached to their membership. More information about the add-on is found here.
Above Avalon Membership
Become a member by using the following signup forms (starting at $20 per month or $200 per year).
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
Apple 4Q19 Earnings Expectation Meters
There is increased attention around Apple’s 4Q19 results. Apple shares are up 19% since the company reported 3Q19 results back on July 30th. Since the start of the year, AAPL shares are up 58% while the S&P 500 is up 21%. For a trillion dollar market cap company, such outperformance is noteworthy.
Apple’s strong stock performance has led to questions regarding what management will have to announce on Wednesday to meet or exceed expectations. At the same time, Apple’s 4Q19 results have the potential of containing some noise as Apple works through its flagship iPhone and Apple Watch launch. For example, the iPhone was not in demand / supply equilibrium by quarters end.
The following table contains my overall estimates for Apple’s 4Q19. My expectation is for Apple to report strong 4Q19 results and 1Q20 revenue guidance.
A detailed discussion of these estimates, including the methodology and perspective behind the numbers, is found in my Apple 4Q19 earnings preview available here. Above Avalon membership is required to read my earnings preview.
Each quarter, I publish expectation meters ahead of Apple's earnings release. Expectation meters turn single-point financial estimates into more useful ranges that aid in judging Apple's business performance. In each expectation meter, the white shaded area reflects my official single-point estimate. The gray shaded area represents a result that is considered near my estimate. A result that falls within this gray area signifies that the product or variable being measured is pretty much performing as expected. A result that falls in the green shaded area denotes strong performance and the possibility of me needing to raise my expectations for that particular item going forward. Vice versa, a result falling in the red shaded area denotes the possibility of needing to reduce my expectations going forward.
Over the years, the expectation meters have evolved with Apple’s changing business and financial disclosures. Ahead of Apple’s 4Q19 earnings, I am publishing three expectation meters:
Products vs. Services Revenue
iPhone vs. non-iPhone Revenue
1Q20 Revenue Guidance
Products vs. Services
Apple breaks out revenue into two categories: products (i.e. hardware) and services. The iPhone likely weighed on Apple’s 4Q19 products revenue due to both declining unit sales and a lower average selling price (ASP). The end result is products revenue that will show little to no growth. Partially offsetting lackluster growth in products, Apple’s Services revenue is expected to grow in the vicinity of 15%. This dynamic will likely improve in FY2020 as both products and services will once again contribute to Apple revenue growth.
iPhone vs. Non-iPhone
Another way of thinking about Apple’s business is to allocate the company’s various products and services into two buckets: iPhone and non-iPhone. Last quarter, Apple’s non-iPhone business registered more revenue than the iPhone business for the first time since 2012. It is unlikely that this dynamic will repeat itself in 4Q19 as the iPhone business gains revenue momentum due to the flagship iPhone launch.
Guidance
Consensus expects Apple to report $86B of revenue in 1Q20. That seems on the light side. My estimate is for Apple to announce 1Q20 revenue guidance in the range of $88B to $91B. Apple has to report more than $88.3B of revenue in 1Q20 to reach a new all-time record for quarterly revenue.
Apple has two tailwinds for issuing strong 1Q20 revenue guidance:
Apple is facing one of the easier year-over-year quarterly compares in years given the demand implosion in China seen in November and December 2018. This will make it that much easier for Apple to report revenue growth in 1Q20.
The environment is conducive to both Apple Watch and AirPods selling well during the 2019 holiday shopping season. Apple not only faces a lack of genuine smartwatch or wireless headphone competition, but also has strong product lines with attractive entry-level pricing available.
On the flip side, one headwind worth monitoring is declining iPhone ASP. Apple cut pricing of its lowest-priced flagship iPhone by $50. In addition, Apple remains aggressive with pricing outside the U.S.
Despite Apple’s strong stock price outperformance so far this year, the company continues to have the lowest forward valuation multiples among the Wall Street giants. A good argument can be made that Apple’s strong stock price outperformance in 2019 hasn’t been driven by expectations of strong 4Q19 numbers or even solid 1Q20 guidance. Instead, the marketplace may be betting on improved visibility around Apple’s financials through FY2021. The environment is becoming more hospitable for iPhone revenue growth to return in FY2020. At the same time, Apple wearables continue to gain momentum. There is then growing smoke around the idea of Apple potentially having a busy first half of CY2020 from a new product perspective.
My working Apple earnings model as well as my granular 4Q19 estimates including unit sales, ASP, and margin expectations, are available here. Above Avalon membership is required to read my full 4,000-word earnings preview. Access to my model is available to members at no additional cost.
My Apple earnings review will be made available exclusively to Above Avalon members. To have the review sent directly to your inbox once published, sign up at the membership page.
Above Avalon Podcast Episode 151: Apple's Financial Tug-of-War
A different kind of Above Avalon podcast episode - dedicated to discussing why earnings are so intriguing to Neil. After going over the two ways to utilize quarterly earnings, Neil goes over some of his expectations for Apple’s 3Q19 and how Apple is currently facing a financial tug-of-war
To listen to episode 151, go here.
The complete Above Avalon podcast episode archive is available here.