Apple’s blowout Q1 2021: What the analysts are saying

Excerpts from the notes that have landed on my desktop, more as they come in.

Rod Hall, Goldman Sachs: Large beat in FQ1 followed by inline FQ2 revenue guide. Mac and iPad very strong but iPhone Super Cycle in question. Apple reported a very strong FQ1 to December driven by better Wearable, iPad and iPhone sales than we had modeled. However, consistent with our elongating replacement cycle thesis, revenue in FQ2 to March was only slightly ahead of consensus while bullish investors had expected a large beat, based on our conversations. We believe both M1 Macs and iPad were in very short supply and add some delayed demand back to our March and June quarter estimates. We also flag that Mac and iPad demand continues to be much stronger than expected consistent with trends we observe in the broader, home oriented, consumer electronics market. However, we see downside risk to Mac/iPad revenues as re-opening occurs while the FQ2 increases the risk that an iPhone super cycle is not materializing. Sell. Target goes to $83 from $80. 

Kyle McNealy, Jefferies: Impressive Quarter All Around … More to Come. Apple reported strong Dec. Q results and provided positive forward-looking demand trend comments. We still think the Street underappreciates how Apple’s positioned to benefit from the 5G product cycle now underway. The company delivered several positive proof points in the Dec. quarter including: 1) 17% Y/Y iPhone revenue growth; 2) ASP improvement driven by mix to Pro models; 3) 1bn+ iPhone installed base; 4) 57% Y/Y growth in China; 5) 24% Y/Y Services revenue growth, and 6) 30% Y/Y Wearables growth. We’re specifically encouraged by iPhone as the flywheel for the company generating attached Services, Wearables, and Accessories. Importantly, 5G impact on Apple’s business is still early innings, and we expect much more to come. Buy. Target to $160 from $140.

Toni Sacconaghi, Bernstein: A strong quarter… Now what? Despite a blowout quarter and what will inevitably be meaningful upward revisions across the sell side, the stock retreated in yesterday’s aftermarket, likely reflecting very high expectations among investors. We note that while our estimates for FY 21 are increasing 8%, the stock had appreciated by a similar amount in the last week alone… AAPL has had a tremendous run, and trades in line with large tech companies with higher growth rates. At 34x consensus 21 EPS, more limited opportunities for upward revisions post Q1 and, the company facing very tough comps and a more muted iPhone cycle next year, we struggle to see the case for material outperformance from current levels. Market Perform. Target to $132 from $120.

Andrew Uerkwitz, Oppenheimer: Growth Reaccelerates Across Products and Services. Apple delivered better than expected F1Q21 sales/EPS of $111.4B/$1.68 compared to the Street’s $103.3B/$1.42E. The positive surprise was driven by outstanding growth across all products and services. In the December quarter, Apple achieved all-time highs for key product sales as well as active device installed base. While COVID-19-related trends accelerated near-term device sales, management expressed high confidence for future growth from share gain and new products. We believe Apple Silicon’s performance advantage, 5G adoption, and stronger integration of Apple’s own hardware, software, and services will elevate Apple into a new phase of growth and market share gain. Outperform. Target to $160 from $125. (!)

Daniel Ives, Wedbush: Cook & Co. Proving iPhone Supercycle Thesis was Not Just Hype, But a Reality. Last night Apple delivered what we would characterize as “jaw dropper” December quarter with iPhone results beating the Street by $5 billion, which was well above even the most bullish whisper numbers. iPhone 12 success out of the gates was Usain Bolt-like and is clearly on a path to meet the supercycle hype with iPhone units that could easily eclipse the previous Cupertino record from FY15 of 231 million units. Outperform. $175.

David Vogt, UBS: Solid FY1Q results as expected but shares likely out over their skis given all-time high valuation. Despite a solid iPhone revenue beat relative to both our estimate and consensus, FY1Q iPhone data doesn’t support a “super cycle” (emphasis mine, see above) in our view. Given units have been relatively weak the past several years, FY1Q results in our view likely reflected a modest degree of pent-up demand in large part coming from China (revenue +57%) as expected following soft results in the prior quarter due to a delayed launch… While Services rev was ahead of expectations in the qtr (up 24% YoY vs our 18% est.), Apple noted it expects growth to decelerate in the March qtr due to tough compares (a year ago benefitted from higher App store rev due to lock-downs). We forecast growth to decelerate to 17% in the March qtr. Moreover, we believe long-term Services growth will decelerate to low double-digits in FY22 largely due to slower growth in digital services, which have benefitted from work-from-anywhere related to the COVID-19. Neutral. $115.

Katy Huberty, Morgan Stanley: Growth Outlook Improves as Installed Base and Services Monetization Accelerates. Active device installed base growth accelerated to 10%, from 7% a year ago, while services monetization (Services revenue divided by prior three year device shipments) grew at the fastest rate in several years (Exhibit 4). Customer loyalty remains well north of 90% across Apple products and half of Mac & iPad purchasers and 75% of Watch purchasers are new to those products. The recovery in China was also broad based with every category outperforming company-level growth rates, pointing to sustained higher engagement and market share gains consistent with our data, and an important reversal after two years of declines in Apple’s second largest country. Without commenting on specific plans, Apple also acknowledged that new markets – both entirely new product categories and products that are adjacent to the current portfolio – will contribute to growth in the coming years. Overweight. Target to $164 from $152. 

Samik Chatterjee, J.P. Morgan: 5G Delivers to Bullish Expectations. Apple’s F1Q/C4Q delivered on even bullish investor expectations in relation to 5G-led iPhone replacement cycle with iPhone revenues tracking towards the high-end of investor expectations and largely in line with our high-end iPhone revenue estimates. However, there still remains a fairly strong runway for growth led by continuation of the high replacement rates, particularly with tailwinds yet to start in Europe, even as 5G smartphone adoption races ahead in North America and China. The strong iPhone momentum in F1Q further emboldens our forecast for +18% y/y unit growth in calendar 2021 and increases confidence in our above-consensus earnings forecast of $4.65 (from $4.45 prior). Overweight. $150. 

Gene Munster, Loup Ventures: Apple’s Quarter in 3 Words: Accelerating Digital Transformation. The accelerating digital transformation means more people are working, learning, and playing at home. This provides a continued tailwind for the iPad and Mac businesses (about 25% of total revenue). We believe these two segments can grow at 10% plus in 2021 and 2022, compared to flat growth over the last few years. Services revenue is also benefitting from pandemic-related consumer habits. We expect these tailwinds to persist for the better part of 2021.

Harsh Kumar, Piper Sandler: Strength Continues as Secular Growth Drivers Persist. For the December quarter, all categories grew in the double-digit range on a year-over-year basis, with the iPhone category growing 17% annually on strong iPhone 12 demand. Management noted the iPhone 12 Pro and Pro Max remain supply constrained. Gross margin came in ahead of expectations, as a higher revenue level and a better mix led to upside. Overall, we believe Apple is executing well, as gross margin remains largely flat on a lower revenue base in the March quarter. Overweight. Target to $160 from $135.

Amit Daryanani, Evercore ISI: No Need for Reddit Mentions With Performance Like This. The sleeper upside though was gross margins inflecting materially higher to 39.8% (+180bps y/y) driven by sales leverage, benign commodity environment and strong mix benefits. Importantly, for March-qtr, while AAPL refrained from providing an explicit guide, the expectation is for sales growth to accelerate (vs. 21% growth in Dec) – we think the implication is iPhones, Macs will likely accelerate more materially and that will partially be offset by modest deceleration in Services and Wearables (both difficult compares). Importantly, we saw AAPL achieve $1.0B+ active iPhone devices (total iOS devices at 1.65B) and monetization narrative that is now just starting to take hold and could drive sizable upside. Outperform. Target to $163 from $160. 

Daniel Ives, Wedbush: How About Them Apples? Cupertino Delivers iPhone Supercycle Results. China remains a key ingredient in Apple’s recipe for success as we estimate roughly 20% of iPhone upgrades will be coming from this region over the coming year. To this point, we are seeing considerable strength from the China region thus far with positive trends heading into 2021. While services growth remains the key to the Apple re-rating story over the past six months, the hearts and lungs of the Apple growth story are built around iPhone installed base upgrades. With 5G now in the cards and roughly 40% of its “golden jewel” iPhone installed base not upgrading their phones in the last 3.5 years, Cook & Co. have the stage set for a renaissance of growth in Cupertino which looks like it should eclipse the previous iPhone record set in FY15, an achievement for the ages in our opinion. Outperform. $175.

Ben Thompson, Stratechery: Apple Earnings. These were some pretty incredible numbers from Apple across-the-board. The pandemic, which both drove increased usage of Apple products, even as consumers, particularly at the high end, have had more cash on hand than ever, certainly played a huge role, but the biggest story of these earnings is China… There is, though, one explanation that Apple didn’t mention: the company’s biggest competitor for the high end of the market has all but disappeared. I’m referring to Huawei, which is really starting to feel the bite of U.S. sanctions, particularly in its handset business.

M.G. Siegler, MG’s Medium: $100B. Make no mistake, Apple is still very much “the iPhone company” — 59% of their revenue this quarter — but every other part of the business that is not the iPhone would be larger than most every other company too. This quarter — the first over $100B in revenue — really was a combination of every part of the business working in harmony. iPhone came roaring back with iPhone 12. Mac and iPad sales were great thanks undoubtedly to work-from-home (plus the first M1 Macs). Services, annualized, is now over a $60B business (!) and show no signs of slowing. Wearables is close behind, with mildly slowing but still strong growth. And, of course, China, had its best growth in over five years. That’s slightly easier to do when the business had been shrinking, but it’s still a good sign for Apple.

Jason Snell, Six Colors: iPad, Apple silicon, and secret sauce. For essentially all of Apple’s nearly 50 years, the company has steadfastly held to the philosophy that the best tech products are made from a fusion of hardware and software. The integration of hardware with software is Apple’s secret sauce, or “the magic,” as Cook puts it. But look at the change to that recipe! It’s now the integration of hardware, software, and services. Which, if you’ve been following Apple for the last few years, makes perfect sense. Services is now in the mix, but the larger point remains: Apple is a company that believes it can make the best products by painstakingly integrating features that other companies just buy off the rack. There was a time when Apple seemed pretty solid at hardware and software, but utterly at sea when it came to services. In the past decade it’s gotten a lot better at it, and it’s clear from Cook’s comments that Apple’s culture has adapted to the idea that services can’t be an afterthought.

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9 Comments

  1. Bart Yee said:
    The decision by Cook, et. al. to settle with Qualcomm, secure a steady supply of 5G chips well in advance, and lock in supply (built by TMSC, ‘natch) for 5 years set the stage for the iPhone 12 5G supercycle. Apple always looking ahead for the long term.

    Simultaneously, continuing the A14 and now M1 advancements means NO chip dependence woes except maybe Samsung OLED display drivers and power management chips Ti and STMicroelectronics. Deft movement of chips from iPads to more profitable and in demand iPhones will keep production moving until supply catches up.

    3
    January 28, 2021
  2. Jerry Doyle said:
    All of the above analysts’ comments are excellent, as they should be considering the historical nature of Apple’s performance. Yet, no one addresses the 800lb gorilla in the room. Then again, that is not the purpose of the above analyses. Why, though, in view of the most outstanding quarterly performance in all categories of the company’s history does the stock price drop almost $6 in after hours trading? The oxymoron above is that while analysts all are raising their PTs, the stock price takes a beating after turning in its most historical performance in all categories.

    1
    January 28, 2021
  3. Fred Stein said:
    Nice PT upgrades. Expect more.

    No one mentioned India, where Apple doubled YoY.

    When asked about the future, am attempt to get Tim to tip his hand, he talked about future market share gains in EVERY category and in places like India and LATAM.

    Apple bought about 1.1% of shares, augmenting the above organic growth in EPS.

    1
    January 28, 2021
  4. David Emery said:
    “revenue in FQ2 to March was only slightly ahead of consensus” Hmmm… 5% beat is not good enough, eh?

    2
    January 28, 2021
  5. Alan Trerise said:
    As expected much of the focus is on iPhone. There is not enough appreciation of Apple Silicon as a super power. The growth of the installed base is accelerating. Other than the draw of the brand, the differentiators on the h/w side bringing in new users are performance and battery life. Both attributable to silicon. Half of purchases for iPad and Mac were new users. With the M series silicon just starting, I can see a super cycle for Mac, both installed base and base expansion. Mac ASPs are higher and with the M series margins will see improvement.

    1
    January 28, 2021
    • Gregg Thurman said:
      the differentiators on the h/w side bringing in new users are performance and battery life.

      I can’t help but wonder (as I’ve said before) how much Apple can reduce the battery drain caused by Qualcomm’s radios. I don’t think we’ve see the end to battery life elongation.

      1
      January 28, 2021
      • Bart Yee said:
        “I can’t help but wonder (as I’ve said before) how much Apple can reduce the battery drain caused by Qualcomm’s radios. I don’t think we’ve see the end to battery life elongation.”

        Apple is observing and learning how Qualcomm chips work. Meanwhile, Apple’s own 5G modems are being developed in tandem with Qualcomm’s latest standalone and integrated modem/SOC units. Consider Apple is likely prototyping 5G modems built on the 5nm+ TSMC substrates and integrated with next year’s A15 chips to see how they perform and how much power it uses. Once they migrate below 5nM to 3nM, the power usage will improve further. If Apple can come up with functional modems that use less power, they can decide when to introduce them and rely less and less on Qualcomm. However, consider that Apple could expand 5G/4G usage to iPads, MacBooks, Macs themselves, and of course, an AppleCar ™ for sure. Then they may still need Qualcomm modems in use cases where lowest power consumption is not a priority.

        0
        January 28, 2021
  6. Gregg Thurman said:
    I track 27 Sell side analysts, 12 of which have upgraded their respective price target since yesterday’s earnings report. Of the 15 that have not upgraded 3 haven’t upgrade in over 265 days. I’m expecting one of that small group (Cross Research) to upgrade within the next day or two.

    Consensus among the Sell side upgraders is $159.

    1
    January 28, 2021

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