Fiscal Q2 earnings season is over for Apple. The company delivered another of its trademark revenue and EPS beats. However, Apple stock (AAPL) – Get Apple Inc. Report has taken a hit due to:
- cautious guidance for the third quarter;
- broad market softness and macroeconomic worries.
Today, the Apple Maven looks at the results in more detail and reaches a few conclusions about what earnings day could mean for Apple and its shares.
Figure 1: 3 Key Takeaways: What Q2 Earnings Could Mean For Apple Stock
Unsplash
(Read more from the Apple Maven: Apple Stock: Fiscal Q2 Earnings Live Blog For Investors)
AAPL earnings: a quick recap
First, it helps to review the headline numbers briefly. Apple’s revenues of $97.3 billion topped consensus by over $3 billion. The 9% top-line growth rate was impressive, considering 54% growth in the comparable quarter last year.
EPS of $1.52 was also a pleasant surprise that beat average estimates by nine cents. The revenue number helped to push earnings higher, and so did margins that expanded yet again in the most recent period.
Takeaway #1: iPhone is on fire
iPhone revenues grew 5%, which lagged my more aggressive expectations. However, it is undeniable that Apple’s smartphone division has been performing superbly.
I have a theory. Apple did not launch its first 5G-equipped device until late 2020, about 18 months after Samsung announced the Galaxy S10 5G. For this reason, iPhone users held on to their older devices in anticipation. It explains the pitiful iPhone revenue growth rates of worse than -10% each quarter in 2019 — see below.
Figure 2: iPhone revenue growth since Fiscal 19.
DM Martins Research, data from company reports
But with the launch of the iPhone 12, demand came rushing back in — see fiscal Q2 of 2021. Riding positive momentum, the iPhone 13 was the first 5G model to be released without delays in the holiday period last year, which helped to boost sales into the most recent quarter.
Takeaway #2: a bump in the road
Investors should now turn the page. If Q2 might have been considered a solid period of performance for the Cupertino company, Q3 could be a very different story. This is not my opinion, but CEO Tim Cook’s and his executive team’s.
According to guidance, revenues in the coming quarter may take a hit of as much as $8 billion. At this high end of the guidance range, we are talking about nearly 10% drag to top line growth caused by component shortages and COVID-related plant closures in Asia.
Not only that, but Apple expects gross margin to reach 43% at best, which would represent loss of profitability for the first time in the past 12 quarters.
The silver lining is that these challenges could be temporary. Apple’s CEO has stated that nearly all assembly lines are up and running again. And of all lost sales in fiscal Q3, at least a good chunk of them could be recaptured in future periods.
Takeaway #3: AAPL stock under pressure
Whether Apple’s April earnings season can be considered a success is up to interpretation. What is clearer is that Apple stock has taken a hit following the print: shares traded at $164 before the earnings release and are now worth $158 — 13% below all-time highs.
AAPL is under pressure. However, the company’s business fundamentals may have less to do with the generally bearish stance than macroeconomic and broad market concerns.
For instance, talks of economic growth deceleration at best, if not a global recession, have grown louder recently. Worse yet, the slowdown in economic activity could happen precisely when the US Central Bank gears up to increase interest rates aggressively.
Given a cocktail of mixed company-specific news and downbeat macroeconomic developments, holding Apple stock could be risky in the short term. Long-term investors should keep an eye on price action, as a potential pullback in AAPL price could unveil a buy-the-dip of opportunity.
Ask Twitter
Understanding that all factors below may be connected in some way: which of the following worries you most about Apple stock today?
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Apple Maven)
