Excerpts from the notes I’ve seen. More as they come in.
Toni Sacconaghi, Bernstein: Wow! It (really) doesn’t get better than this… Could FY 22 decline? We attribute Apple’s Q2 strength to two factors: (1) a late iPhone launch in the Dec (FY Q1) quarter, which amplified seasonality in Q2; and (2) a pronounced, favorable shift in consumer spending, as well as work/learn from home, due to the pandemic. When and to what degree the strength in spending from the pandemic will unwind is clearly the key question. We believe it may be difficult for Apple to grow in FY 22, and currently model revenues fractionally down in FY 22… but it could be worse. Market Perform. $132.
Katy Huberty, Morgan Stanley: What we learned from Apple’s March quarter earnings report. Apple reported a record (since 2012) revenue (16% above consensus) and EPS (41% above) beat, driven by upside in all segments except wearables with EMEA and APAC growth acceleration particularly surprising. All revenue segments grew at least 25% Y/Y and all regions grew at least 35% Y/Y in the quarter. While growth rates were aided by easy comps from the initial COVID-19 impact a year ago, all segments grew double digits on a two year CAGR basis as well. Gross margin of 42.5% beat our forecast by 280bps driven by currency, mix and lower costs. EPS also benefited from lower OpEx and booked gains on investments which flow through OI&E. Even with guidance implying weaker than normal iPhone seasonality and a $3-4B hit from component constraints for iPad and Mac, Street estimate for $69B of June quarter revenue needs to come up by $2-5B based on our analysis which will also flow through to higher EPS with gross margin strength offsetting higher OpEx. Overweight. To $161 from $158.
Martin Yang, Oppenheimer: What Apple’s “Once-In-A-Decade” Quarter Means. At Apple’s scale and profitability, growing sales by over 50% Y/Y is frightening to competitors—Apple’s F2Q21 sales increased 54% Y/Y to $89.58B. The last time Apple grew sales by over 50% was F2Q12. The results are not any less impressive considering F2Q20 was impacted by COVID-19 shutdowns. Given Apple’s much broader subscription/cloud services offerings and expansive accessories, the near- term boost in core products (phone/PC/tablet) market share will have sustained long- term benefits. We believe longer term, Apple will leverage its tech superiority (Apple Silicon) and vertical integration (chip to cloud service) to distance itself further from competitors in mature as well as emerging market verticals. While near-term growth rates will start to moderate following F2Q21, we are more comfortable in Apple’s long-term positioning. Outperform. $160.
Samik Chatterjee, J.P. Morgan: F2Q Shows 5G Has More Legs Than One Quarter. Apple reported a broad-based beat across all segments, with iPhone revenue strength on 5G-led adoption and rich mix, Mac and iPad strength helped by consumer demand in a WFH environment, and Services growth accelerating (despite tough comps) helped by larger installed base and engagement across its wider services offerings. The 5G iPhone cycle is not only playing out in the form of strong consumer upgrades and switchers, but it is also positioning Apple for a higher share of the overall smartphone market on account of its leadership in 5G devices, and in turn driving (and accelerating) the Services transformation through better leverage of a faster growing installed base. Overweight. To $165 from $150.
Harsh Kumar, Piper Sandler: Strong Execution Continues Even With Supply Constraints. Apple reported a strong March quarter, significantly beating Street expectations on the top and bottom lines. Consistent with the last few quarters, Apple did not provide formal forward-looking guidance. However, management did note the June quarter would be sub-seasonal due to 1) the timing of the iPhone 12 launches (making the June quarter the bottom for fiscal 2021) and 2) $3 billion to $4 billion of supply constraint headwinds. During the March quarter, almost all geographies and product lines set records. In addition, a major highlight included the 270 bps sequential gross margin increase to 42.5% due to a favorable mix. Just as impressive is the expectation that June quarter gross margin only declines 50 bps sequentially. Overweight. $160.
Kyle McNealy, Jefferies: Full Speed Ahead. Apple reported strong Mar. Q results and provided positive forward-looking demand comments. We still think the Street underappreciates how Apple’s positioned to benefit from the 5G product cycle underway. The company delivered several positive proof points in the Mar. quarter including: 1) 66% Y/Y iPhone revenue growth; 2) 5% Y/Y ASP improvement driven by mix to Pro models; 3) a record high iPhone installed base; 4) 87% Y/Y growth in China; 5) 27% Y/Y Services revenue growth, and 6) 25% 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. To $175 from $160.
Daniel Ives, Wedbush: Cook & Co. Deliver a “Drop the Mic” Q as Supercycle Playing Out. We have seen many blow out quarters in our many years covering Apple, although last night’s March quarter we would characterize as one for the record books in Cupertino. Apple absolutely crushed rising Street expectations heading into the print across the board, with iPhone revenues beating by 17%+ in a jaw dropping performance as the iPhone 12 supercycle is playing out before our (and the Street’s eyes). China remains the fuel in the iPhone 12 cycle which based on our recent Asian supply chain checks and supported by Apple’s high level outlook for the June quarter are showing no signs of slowing down. Of course chip shortages will have a headwind for the next few quarters (roughly $3 billion to $4 billion headwind in the June quarter) for Apple like every technology/automotive player, but the reality is this product cycle is enabling Cook & Co. to achieve its next level of growth and monetization looking ahead. Outperform. To $185 from $175.
Wamsi Mohan, Merrill Lynch: Many positives in the quarter but sets tough bar in F22. Apple was supply-constrained in several product lines, yet reported strong revenue and margins. iPhones came into supply/demand balance only during the March quarter. We had expected the March quarter to be strong given the delayed launch of iPhones last year, and we also expect this strength to continue into the June and September quarters. However, starting in the December quarter, Apple will face tough comps, and F2Q22 will comp against the 54% y/y overall revenue growth, and 62% y/y product revenue growth, seen this quarter. Reiterate Neutral on risk/reward balance where we see tough y/y comps and limited upside to already high gross margins. Neutral, To $160 from $155.
Rod Hall, Goldman Sachs: Upgrading to Neutral as Apple materially beats in all segments. We are upgrading our rating from Sell to Neutral after Apple posted another large beat and implied a raise vs. our June revenue expectations. Our original view that the iPhone cycle would disappoint in the midst of COVID was clearly wrong. Not only has Apple done better than we expected on iPhone during the cycle but Mac and iPad have also materially outperformed our forecasts. iPad demand is so strong that the company believes they will leave $3bn-$4bn of revenue on the table in FQ3 to June. With this kind of demand backlog and a very difficult re-opening forecasting environment, we are moving to the sidelines here. To Neutral from Sell. To $130 from $83.
Amit Daryanani, Evercore ISI: Flash – Blowout March-qtr Print. No Slowdown here. AAPL reported Mar-qtr results of $89.6B/$1.40 (vs. street at $77.1B/$0.99) with topline growth an impressive 54% driven by all geos and product categories. Key points to highlight here: 1) iPhone revenues came in well ahead of expectations at $49B (vs. street at $41.3B) – up ~70% y/y and down 25% q/q. 2) Services revenues were materially ahead of expectations at $16.9B (street at $15.5B) and implies ~27% y/y growth (~300bps better vs. LQ). 3) Mac, iPads and Wearables were all well ahead of expectations especially macs at $9.1B vs. street at $6.9B. and 4) gross-margins at 42.5% (consensus 39.7%) was up ~280bps y/y, but notably we saw both product (36%+) and services Gross-margins (>70%) come in ahead of street. Also, AAPL upped their dividend by 7% and announced a $90B buyback authorization. Outperform. $175.
Michael Walkley, Canaccord: Buy. To $165 from $155.
Sidney Ho, Deutsche Bank: Buy. To $165 from $160.
Laura Martin, Needham: Buy. $170.
William Power, Baird: Outperform. To $160 from $155.
Chris Caso, Raymond James: Outperform. To $185 from $160.
Jim Suva, Citi: Buy. To $170 from $150.
David Vogt, UBS: Buy. To $155 from $142.
Daniel Ives, Wedbush: Cupertino Delivers a Supercycle Despite All the Skeptics; Drop the Mic Quarter. Apple just announced its FY2Q21 (March) results that featured a top and bottom line beat for the record books with the main focus on the undergoing iPhone 12 and 5G supercycle. To this point Cook & Co. reported total revenues of $89.6 billion (up an eye popping 54% y/y), handily crushing the Street’s $76.83 billion estimate with the all-important iPhone revenue driving the beat coming in at $47.9 billion vs. the Street’s estimate of $40.80 billion continuing to show strength in our supercycle thesis… We essentially view this quarter as the first-half of the 5G supercycle and a “drop the mic” quarter for Apple, we are seeing order activity continue to track significantly ahead of expectations signaling a green light into FY21. We believe this quarter ultimately will be the first step in driving this stock to a $3 trillion market cap over the next year. Outperform. $175.
Gene Munster, Loup Ventures: Apple’s Growth Story Will Continue. Apple reported March quarter results with revenue 16% above the Street. While growth rates will fluctuate, Apple will remain a growth story for the foreseeable future. The company will benefit from a multiyear 5G cycle, an accelerating digital transformation driving demand for its products and services, and eventual new product categories. Putting it together, we believe shares of AAPL will approach $200 (48% upside from current levels) over the next several years, based on 35x our 2022 EPS estimate of $5.70. As analysts update their estimates, we believe consensus expectations for 2022 EPS will be closer to $5.00.