Apple (APPL) is a $2 trillion company and their latest jaw-dropping earnings report was by far beyond a best-case scenario.
They crushed top-line revenue beating estimates by over $7 billion and profitability was just as impressive beating estimates by over half a dollar.
Going into the iPhone 12 product cycle, the results mean that moving forward, the company could benefit from 20% growth as the momentum becomes a true tailwind of sorts.
Surely, this was the quarter that Apple could have taken a quick siesta, they even had an out with the pandemic and all, right?
But no, they stuck to their guns and delivered another resilient earnings report.
Some investors were wary even second-guessing the company going into these earnings because of the health crisis forcing 25% of Apple stores to close.
But that proved immaterial and physical store sales actually only comprise 6-7% of sales.
The data was undeniable showing that customers went online to buy Apple’s products in droves.
Not offering guidance, second quarter in a row, plays into Apple’s hands.
This gives them the leeway to never give forward guidance again.
Apple has done enough that they are afforded the wiggle room from investors that feed into the “buy the dip” mentality.
This will be the biggest iPhone refresh cycle since iPhone 6 and it will come thick and fast.
Supply chain might bottleneck, and iPhone might delay by a month, but that is splitting hairs.
In a digital economy where wielding a smartphone is king, consumers will tough it out and upgrade to the iPhone 12.
It’s easy to cut out vacations, but impossible to get rid of your phone or car.
Other tech is stalling, such as the likes as Google who recorded 2% declining revenue growth for the first time ever.
Not all tech has been created equally.
Apple’s overperformance is just a taste of what we will likely see in performance over the next 9-12 months. It is highly unlikely they will botch the new iPhone distribution, servicing, and production of it.
The company was able to beat iPhone revenue projections by $4 billion last quarter and this segment comprises 46.6% of the total revenue now.
I see this number sliding down as services pick up more. In 2021, iPhone revenue could be in the high-30s which is a number management is more comfortable with.
Hardware isn’t the future and propping up and servicing the apps and software is where the real premiums hide.
Apple also did its best to prove it's not just an “iPhone company” anymore.
Air pods and Apple watch are doing particularly well. Air pods project 90 million units in 2020 after 65 million the year before, and 19 million in 2018.
Ironically, the earnings report was disclosed after Tim Cook’s government testimony to avoid the wrath of the politicians.
Granted, Apple didn’t want to offer more ammunition to the interrogators timing the blowout earnings report after the testimony ended.
Apple’s App store is the crown jewel of the business model and the 30% commission is something Cook and the company will defend at all costs.
Regulatory risks are mostly tilted towards Facebook and Amazon, and I do not think there is enough evidence against Apple to meaningfully penalize them.
The argument that if developers do not wish to agree to Apple’s 30% commission has always had the freedom to switch to Android hold water no matter if one likes it or not.
Investors are not viewing anti-trust problems as a major risk and that was evident in the price action last Friday when the stock rose over 10%.
The path to profits has been smoothed over and this clears the way for any dip to be bought until 2021.
The stock usually does not have major corrections, therefore, any 3-4% dips can be described as optimal entry points.
Apple continues to under promise and overdeliver.
If more companies did this, there would be fewer bankruptcies.
I am highly bullish Apple and the rest of big tech.
