Earnings Scorecard: Apple, Inc. 2017Q4
- Apple reported another blowout earnings report as the company gets ready for its busiest quarter with its new set of products.
- The company reported some great numbers across all product categories.
- Management raised guidance which is a really good sign for the iPhone X demand.
The most valuable company in the world, Apple Inc. reported another strong quarter to close out its 2017 fiscal year last week. Apple keeps on proving all the doubters wrong about the lack of innovation or about the consumers getting an “iPhone fatigue”. This was thesis was tested in 2016 when the stock hit the $90 range because of slowing growth in China and “lackluster” products. That moment around May 2016 turned out to be a great buying opportunity because the stock is now trading around the $170 range. And given the demand for the iPhone X, it seems like it’s going to be a good iPhone cycle. I don’t know if it’s going to be a super cycle like the one we saw with the iPhone 6. The company will also be able to maintain its margins because of premium pricing on the phone.
Apple reported earnings of $2.07/share versus analyst expectations of $1.87/share. On the revenue side, the iPhone maker generated $52.6 billion versus expectations of $50.79 billion. This represents revenue growth of 12.3% which is really impressive for that is criticized to be just a phone company. Apple exceeded expectations on product category sales. The company reported the following product sales numbers:
- iPhone: 46.7 million (up 3%)
- iPad: 10.3 million (up 11%)
- Mac: 5.4 million (up 10%)
The company’s services business which includes Apple Music and the App Store generated $8.5 billion. Apple’s services business is now $30 billion which is equivalent to the size of a Fortune 100 company. This just demonstrates that Apple has a great iOS ecosystem that is also bolstered by great brand loyalty.
The company’s margins didn’t seem pressured coming in at 37.9%. Apple’s cash pile is now at $269 billion. And although has never made a big deal the company still makes smaller bolt-on acquisitions that help build the company's future ventures. Last week, Apple acquired Invisage Technologies for an undisclosed amount. Invisage Technologies is an image sensor startup that will probably bolster Apple’s innovations in FaceID and Augmented Reality. In terms of guidance, management gave a good outlook for its busiest quarter and they expect the following:
- Revenue between $84 and $87 billion
- Gross Margins between 38% and 38.5%
This is a good indicator that demand for the iPhone X seems too high and the high-priced phone will be able to sustain the company’s margins. To supplement the phone, Apple has a good product set for the holiday season and I think the new Apple Watch will do well. The company is moving into content creation with its first TV scripted drama coming soon. I hope the company makes a big deal to really pivot the company away from the iPhone. The company should have bought Netflix when it was still less than $50 billion. A Netflix acquisition would have really accelerated Apple’s service revenue and maybe the company wouldn’t be looked at as just a smartphone or hardware company.
Although, I do agree most of its revenue comes from the phone the company under the stewardship of Tim Cook is doing pretty well. Tim Cook is no Steve Jobs but he is a great leader he has navigated the company to new heights since taking over as CEO. Apple might not be first in terms of developing new features for smartphones but they definitely do it the best. The iPhone is probably the greatest invention that we have ever seen and Tim Cook is still capitalizing on that with his great execution. The upcoming quarter’s financial guidance is evidence that Apple is probably the greatest consumer product company ever. The company’s stock is still cheap and it is a buy on any significant pullback.
Grade: A+
Estimates: Earnings- $1.88/share; Revenue- $51.37 billion on Estimize.
Disclosure: Cresco Investments is long Apple (Stock Ticker: AAPL).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
