The Big Apple...New York City? Not exactly. I am talking about Apple (AAPL) . Apple, the greatest consumer electronics company of all-time, released the firm's fiscal fourth quarter results on Thursday night. The stock sold off in response. I am literally kicking myself for agreeing to write this article. Why? Because as the shares show weakness amid an already weak tape, I am interested, very interested in adding to my long position, and I can't buy the shares and go write a positive article about the name. In order to keep my hands squeaky clean, it has to go the other way around. So be it. Let's rock.
Wait, Sarge... did you not see the iPhone miss? Sure did. Did you not see the quite nasty drop in revenues generated out of China? You bet I did. Hey Sarge... they didn't even provide guidance. I know, isn't this just the perfect set-up? I will explain my thought process. I will explain it all. Grab a pad and pen. Get that extra cup of coffee, and gather around. We've got some 'splainin' to do.
The Quarter Reported
For the firm's fiscal fourth quarter, Apple reported EPS of $0.73, beating the street by three cents, on revenue of $64.69 billion. The revenue print was good for growth of 1%, and easily beat consensus view.
Now, we already know iPhone sales missed. Does that not make sense though? Ahead of a highly publicized launch of the next generation 5G capable iPhone 12's (four varieties). I think it does. Away from the iPhone line, the rest of the firm's product lines all handily grew (25% in aggregate) and beat projections. We're talking iPad, Mac, Wearables and Home Accessories. They all beat.
The real story for me is in services, still. This is where the margin is, this is what the products are really good for, long-term. To keep the installed base in place, and then sell them everything. AppleCare, cloud services, Apple Music, Apple TV+, and the app store. The deal is this... Services, for the quarter, contributed $14,549 billion to the $64.69 billion whole. Not that impressive you say. To that I say this: The group beat expectations and continues to grow. That said, even now, with Services accounting for 22% of sales, the higher margin unit provides 39.4% of gross income. Hmm.
Gross margin for the entire firm landed at 38.2%. For services... 66.9%, for products... 29.8%. This is the main reason why markets have over the past year and change, assigned a much higher multiple to the equity in terms of valuation.
On Guidance & China
No, the firm offered no public outlook moving forward. How can they really, as the pandemic and its economic impact worsen? So much for the mall, which is where most Apple Stores are. Yet some guidance was there if you read the handwriting on the wall, or listened to the call. CEO Tim Cook explained that the sales drop in China was really a new iPhone story. Sales growth for all other types of consumer hardware were up double digits in percentage terms in that nation.
In addition, CFO Luca Maestri noted that the first two versions of iPhone 12 only shipped four weeks into the current quarter, and that the other two versions are yet to ship, but that sales already appear encouraging. Maestri expects the iPhone to show growth for the quarter for fiscal Q1 despite the late introduction of these products. In general, Maestri expects non-iPhone products and services to broadly grow by double digits this quarter.
In short... buy this dip. No, don't buy the markets. There's a national election next week. Just buy some Apple (AAPL) on the dip. The firm had a better quarter than you think, and is set up for accelerated success in the future. That's my opinion, and that's how I am going about my business.
I will buy these shares down to $105. I will not panic until the shares approach $95. My target price for now is for a return to $138. Suddenly, I'm the Apple bull. Oh, the irony.