Toni Sacconaghi: Outlook for Apple in 2020 more uncertain than usual

With Apple hovering between $207 and $209, Bernstein's 12-month price target is stuck at $190.

From a note to clients sent last week that landed on my desktop today:

Historically, Apple's fiscal Q3 results have meant relatively little to investors, whose focus by this time had typically shifted to next year's iPhone cycle – with anticipation driving seasonal outperformance in the stock. Following Apple's volatile 2019, however, we'd argue that Q3 results will likely matter more than usual, as they could shed further light on (1) the iPhone's health in China; (2) price elasticity of iPhone sales, given recent price cuts in emerging markets; and /or (3) any contraction or further elongation of iPhone replacement cycles...

Looking forward, we note the outlook for FY20 is arguably more uncertain than in prior years, given that Apple will be launching several major new Services, questions about the trajectory of replacement cycles remain, & rumors about next year's iPhones appear less than definitive. While all eyes this quarter will likely be on Apple's FQ4 guidance, we note that this guidance has historically *not* been a helpful predictor of strength in the subsequent year's cycle. We expect Apple to guide to FQ4 revenues of $60-$62B and gross margins of 37 – 38%.

Maintains Market-Perform rating and $190 price target. 

My take: For reasons I can't discern, Sacconaghi has been wrong on Apple for nearly as long as I remember. But you never know what's around the corner.

See also: Cramer: Huberty vs. Sacconaghi (video)

12 Comments

  1. David Emery said:
    Now here’s something Sacconaghi and Munster should debate:
    “resolved: Apple 3Q results (do|do not) provide a prediction for the next year.” They seem to have come to completely opposite conclusions.

    And someone could/should punch the numbers: Take the ratio of ‘this year to last year’ 3Q results and compare them historically to the ratio of full year results.

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    July 30, 2019
  2. victor castroll said:
    he’s right this time.

    ps – today’s hiring leak gives you a preview that all is not well.

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    July 30, 2019
    • Mark Visnic said:
      No. He’s wrong again, as you are, again. If you had any influence — though the price action suggested you failed in that regard as well — you would deserve a sarcastic thank you for creating another pricing inefficiency to exploit.

      You should move on from Apple and try another name you have a chance to understand better. You have shown clearly you are out of your league on this one.

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      July 30, 2019
  3. Gregg Thurman said:
    “We expect Apple to guide to FQ4 revenues of $60-$62B”

    Sacconaghi’s “expectations” are the same that Apple guided last year. Given the headwinds that Apple has faced on WS since the December quarter, I view guidance at this level to be a positive.

    I’m with Cramer on this, guidance that shows less weakness than current sentiment would suggest is a positive. Sacconaghi’s expectations don’t reflect weakness YoY.

    “Take the ratio of ‘this year to last year’ 3Q results and compare them historically to the ratio of full-year results.”

    I don’t think anyone has done it because interpreting the results would be extremely difficult. I’m willing to give it a try. How much are you willing to pay for my time? : )

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    July 30, 2019
  4. Gregg Thurman said:
    I think the biggest problem with the Sacconaghi’s of the world is that they have no historical data from which they can estimate future performance of Services. Without that historical data, and without the vision to see further out, they would be forecasting in the blind. Sacconaghi is a conservative analyst and isn’t going to do that.

    In my mind, as Services are essentially starting at zero, any revenue derived from Apple’s new offerings will be net positive to revenue and depending on just how successful those new offerings are will be a net positive to earnings as well. I can expect initial success might be slow in coming, but given Apple’s track record with new offerings I believe that by years end a bright light at the end of the tunnel will be shining (and it ain’t gonna be a train).

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    July 30, 2019
  5. Paul Brindze said:
    FWIW I believe the real surprise in Services will be Apple Arcade. Because no historical data exists, no one is counting this as anything. I believe, however, that it can be a major upside surprise when finally released. Apple has never been a real player (pardon the pun) in the game world. I think there is pent-up demand for strong games, particularly those that will play well on the Mac. Apple seems to be deploying capital well in the developement of this service, and, if the product is good it could be a runaway success.

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    July 30, 2019
    • John Konopka said:
      This is why I feel less clear about Apple’s future. This is not a negative slant, I’m just saying that Apple is so diverse it is hard to get a feel for things. When it was just the Mac or Mac plus iPod or iPhone there was less to consider. Now Apple has so many strands to their business it is hard to get a grasp on things.

      I feel that Arcade, Apple TV, Music, Apple Watch and its health aspects, iPhone, the upcoming credit card, Apple Pay, and all the other businesses all support each other. You can’t look at something like Arcade or Apple TV in isolation because sales of iPads, Macs and iPhones all lead to more use of Arcade and the attractiveness of Arcade may lead to more sales of the hardware platforms.

      These are all good things for AAPL, just makes it hard for me to understand.

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      July 30, 2019
  6. Gregg Thurman said:
    “Toni Sacconaghi: Outlook for Apple in 2020 more uncertain than usual”

    It is for Toni, nearly everybody else not so much.

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    July 30, 2019
    • Mark Visnic said:
      I just saw this thread with Sacconaghi’s pre-earnings view. It is completely counter to my view that the upgrade cycle accelerates on 5G as more services roll out. I think it rarely, if ever, has been clearer that revenues and profits will be up substantially in 2020 and 2021. The street is far too low.

      After 2021, the demand pull from 5G will push the upgrade cycle back again. By 2022 though, it may not matter as wearables make iPhone revenue growth far less significant to Apple’s perceived value calculus.

      I’m pleased about the Q3 call but, I would have been as happy with something lackluster and a share price decline because 2019 doesn’t matter too much. It’s all about 2020-21 for multiple expansion and significant price lift In my view.

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      July 30, 2019

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