“As per usual, Apple’s Q4 results are not of particular importance, but guidance is.” —Analyst Toni Sacconaghi
From a note to clients dated 10/23/19 that landed on my desktop Wednesday:
For FY 20, we have updated our FY20 revenue estimates and remain modestly above consensus (+2%), although our EPS is largely inline, due to incremental costs from Apple TV+. We are now 300 bps above the Street on Services revenue, which we expect to accelerate from +16% to +20% growth on the back of deferred revenue recognition from Apple TV+, and are over 10% above the Street on Wearables/other due to strong AirPods growth.
We underscore that (like last year) near-term investor sentiment is likely to be shaped by iPhone revenues, where we estimate that Apple will face a high single digit (perhaps 8%+) headwind to iPhone ASPs in FY 20 due to lower pricing and a mix shift to the iPhone 11, deferred revenue reallocations from iPhone to Apple TV+, and the rumored release /resultant mix shift to a new iPhone SE. As such, the key wildcard over the next 3-6 months is whether we see any weakness in iPhone units, either from continued elongation of replacement cycles, renewed macro / trade concerns, or worse-than-expected uptake of the SE 2.
On net, we are more confident in Apple’s ability to deliver upside to consensus revenues and EPS in FY 21 amid a 5G cycle than in FY 20 – for FY 21, we see a plausible path to $16+ in EPS (vs. consensus of $14.54), and while early indicators appear encouraging for FY 20, we remain uncertain about the ultimate strength of the iPhone 11 cycle and investors’ reaction, given the large headwind to ASPs, macro uncertainty, and the significant run up in the stock.
Maintains Market-Perform rating, raises price target to $225 from $205.
My take: Better late than never. Sacconaghi is a smart one. Interesting that he’s the only analyst I’ve seen who has given even a nod to Rod Hall’s concern about Apple giving away millions of years of free Apple TV+ to promote the new service.