Barron’s: Why Apple is down

From Erik Savitz’ “Apple Earnings Were Out of This World. Why the Stock Is Falling.” posted early Wednesday:

Apple posted blowout results for its fiscal third quarter, ended June 30, but the stock edged lower in late trading…

On a call with analysts, Maestri said the company again won’t provide detailed financial guidance given the ongoing uncertainty related to the pandemic. He said the company sees strong double-digit revenue growth in the September quarter, but at a smaller level than in June, for three reasons.

One, he said foreign exchange issues will be 3 percentage points less favorable. Two, he said services growth will be lower, after the June quarter benefited from an easy comparison in the year ago quarter, when advertising and Apple Care revenues were impacted by the pandemic. And three, he said that supply constraints will be higher than they were in the June quarter, with a particular impact on iPhone and iPad sales.

My take: The elephant can tap dance, but the bears only hear what the bears want to hear.

23 Comments

  1. Jerry Doyle said:
    This is pretty much typical. Apple blows off the barn doors and the stock price pulls back. What else is new? Then a few days after the stock price pulls backs, it starts climbing when everyone on WS realizes this is the company to place your bets on going forward. Apple at $175 by EoY.

    4
    July 28, 2021
  2. Fred Stein said:
    We need folk medicine, pop psychologist Dr. Phil to explain Mr. Market’s ADHD, manic-depressive behavior. No one can claim this was “priced-in”.

    4
    July 28, 2021
  3. Fred Stein said:
    EPS doubled, YoY. No one mentions this. Huh?

    At $.22 dividend, Apple has more cash to make smart investments in itself as in R&D and buybacks. So far, Apple’s ROI on these investments beats ALL norms.

    See next.

    3
    July 28, 2021
  4. Fred Stein said:
    Look at Tim and Luca as investment managers over the last 10 years.

    They ramped up R&D to expand the portfolio, creating multiple best-in-breed products and services all with stellar growth.

    They sustain legacy iPhone and Mac, each taking share because each expands its tech lead due to those R&D innovations.

    Apple silicon, a 10 year vision, beats everything out there in every metrics (or nearly so.)

    The keep investing in emerging markets, green tech, diversity, and ecosystem (suppliers and developers) earning great ROI, while supporting core values.

    They invest in their people. No competitor gives stock ownership to 100% of their employees.

    Buybacks – we all get it.

    11
    July 28, 2021
    • Gregg Thurman said:
      Fred, you would be a better choice to appear on CNBC, than Saccodummy.

      If I can add to you most excellent narrative, Luca said that DESPITE three potential headwinds FQ4 revenue will grow “strong double digits”. I interpret that as ~23%.

      Think of how extraordinary 23% growth by the world’s largest, richest Company is.

      9
      July 28, 2021
  5. Stock down? Barely (from Open). Noticed those $142, 143, 144 &145 shares were snapped up promptly. California’s finest apples rarely go on sale this time of year.
    Some of the biggest investors have meetings after their major holdings declare Earnings. Here they digest results & decide to accumulate or perhaps sell some shares. Calpers, Norwegians, Swiss, NY State/City pensions are major shareholders. I’d vote to buy more shares of Apple to pay future pensions if I were back in such mtgs.

    0
    July 28, 2021
  6. David Emery said:
    Part of the failure here is that ANALysts seem to think a component shortage would result in -LOST- sales. At best, it’s deferred sales into the next quarter. I don’t know anyone who said, “Well, darn. I can’t get my iPhone today, so I’ll go buy an Android at Best Buy.”

    10
    July 28, 2021
    • Jerry Doyle said:
      @David Emery: Your comment makes too much sense David. It’s too cogent for analysts to wrap their heads around.

      3
      July 28, 2021
    • Gregg Thurman said:
      In other words, Luca said we could GROW MORE if we could get more. This could be a ramp problem or a capacity problem, but growing strong double digits is not a problem that justifies a sell off.

      2
      July 28, 2021
  7. Paul Brindze said:
    Buying opportunity. Just bought a few hundred more shares.

    And 20 options Sept 140’s.

    4
    July 28, 2021
  8. Kemble Widmer said:
    Just read the earnings transcript…… goodness, not sure I’ve ever been so bullish on the stock: demand constraints, India and other emerging market growth, Luca indicating sustained gross margin in the low 40’s, services growth, early innings of 5G,…. I mean, for a 15 year bull and reading every transcript, WOW. And imagine iPhone sales once 5G is more prevalent and the low cost iPhone has 5G….

    7
    July 28, 2021
    • Bart Yee said:
      @Kemble Re:gross margins. In reviewing Q4 10K Fiscal Year reports, here’s the gross margins for last three years:

      Gross Margin 2020 2019 2018
      Products ——31.5%-32.2%-34.4%
      Services — —66.0%-63.7%-60.8%
      Total GM ——38.2%-37.8%-38.3%

      Compare that to Q3 FY2021:
      Products 36% & Services 69.8% yet overall total was 43.3%, up 80 basis points.

      In less than a year, Apple has moved gross margin from Q4 2020 year end of 38.2% to 43.3%, a 5.1% increase (!) or 510 basis points, all increasing net income and all metrics dependent. Likely this will come back some as new iPhones and products come online but this margin expansion should not be forgotten as Apple, it’s designs, products, services and its suppliers become more and more efficient.

      1
      July 29, 2021
  9. bas flik said:
    luca and tim were really positive. listening carefully to them is best indicator for the future. are they really enthusiastic or only playing to be enthusiastic. as they are no professional actors you can clearly hear the difference. and Tim and Luca never lie.

    6
    July 28, 2021
  10. Kirk DeBernardi said:
    There’s no place like home.

    There’s no place like home.

    There’s no place like home.

    There’s nothing that pays like patience.

    There’s nothing that pays like patience.

    There’s nothing that pays like patience.

    6
    July 28, 2021
  11. Bart Yee said:
    Other things to look for in September quarter – new iPads mini and otherwise likely to debut. Watch 7 will come online and continued Watch SE popularity. New Mac Pro and MacBooks with M1/M2, plus possibly servers, displays, and further shedding of Intel based products.

    Subscription growth continues at 25%+ annually. Install base keep growing with many switchers and new users of Apple products, particularly iPhone and Watch. Half of all customer Mac and iPad purchases were new users! M1 based products are making more inroads into enterprise markets. And continued new service and subscription bundles will remain popular revenue growth factors.

    In the US, Back to school season begins in earnest for some locations. Back to office may also occur although the remote work reckoning is still in progress. The economy is ramping up and there’s mild to moderate optimism, pandemic variants notwithstanding.

    Apple retired 136+32M=168M shares @ avg $133.93 price last quarter and would be on track to at >135M shares at prices >$138 if prices remain steady for current quarter.

    Apple is selling everything they can make and I really don’t see demand slowing down much in September quarter but rather gathering some steam towards Apple Events in late August and mid September. Whether Apple wishes to push iPhone sales into September (which would improve comps) or be forced to delay intro into October holiday quarter, either really doesn’t matter.

    2
    July 29, 2021
  12. Bart Yee said:
    And here is the current iPhone lineup:

    SE from $399
    XR from $499
    11 from $599
    12 mini from $699
    12 from $799
    12 Pro from $999
    12 Pro Max from $1099

    What will happen when the iPhone 13 comes in and the iPhone 12 gets discounted and on sale as last years model? Which model(s) get dropped from the lineups and which remain on sale in selected developing price sensitive countries like India and South America?

    Can you imagine a strong 5G lineup with iPhone 13, lower priced iPhone 12’s, and a budget 5G iPhone SE3 2022 in the spring? With backup value non-5G in iPhone 11 and XR? Wow! Every price category covered with no less than A13 power except the XR.

    2
    July 29, 2021

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