“I’m not the greatest, I’m the double greatest. Not only do I knock ’em out, I pick the round.”
– Muhammad Ali
The Greatest of All-Time
I can only guarantee one thing. We are probably going to use the words “all-time record” a few times. The greatest consumer electronics company of all time (and it is really so much more than that), Apple (AAPL) released the firm’s fiscal first quarter performance on Thursday evening. The firm posted GAAP EPS of $2.10 on revenue of $123.94B. Earnings grew 25% year over year, and easily beat Wall Street. The revenue print was good for annual growth of 11.2%, beat Wall Street’s view by an incredible $5.4B, and was good for an all-time quarterly record.
The firm produced operating cash flow of $46.97B and free cash flow of $44.2B. With total debt of $123B and cash and marketable securities totaling $203B, Apple ended the reporting period with a net cash position of $80B. Gross margin landed at 43.8%, easily beating consensus, as there was notable margin improvement for both the Product and Services segments.
Notably, Apple boasted a new record installed base across every major product line as well as every geographical region. This totals about 1.8B devices, which automatically boosts the total addressable market for Apple’s services segment.
Americas: Sales up 11.2% to $51.496B.
Europe: Sales up 8.9% to $29.749B.
Greater China: Sales up 21% to $25.749B.
Japan: Sales down 14.2% to $7.107B.
Rest of Asia: Sales up 19.3% to $9.81B.
The segment drove sales of $104.4B, up 9%. This accounts for 84.25% of total quarterly sales, while generating 73.96% of gross income at a segment gross margin of 38.42%.
iPhone: Sales up 9.2% to $71.63B.
Wearables, Home and Accessories: Sales up 13.3% to $14.7B.
Mac: Sales up 25.1% to $10.85B.
iPad: Sales down 14.1% to $7.25B.
During the call, CEO Tim Cook got right to the point. “We experienced supply constraints that were higher than in the September quarter. I can’t say it gets any easier.” Readers will recall that for the September quarter, Apple had said that it had suffered a $6B impact to its business due to supply chain and logistics issues. Apple offered no such numerical qualification this time around. The firm mentioned both iPhone and Mac performance as having been impacted, and iPad as being hit especially hard.
That said, Apple posted all-time records for both iPhone and Mac sales. As far as the iPad is concerned, sales were down (I tried to buy one for my wife for Christmas, but there were none to be had), but about half of all iPad buyers for the period were new to the product.
This segment drove sales of $19.516B, up 23.8%. This accounts for 15.75% of total quarterly sales, while generating 26.04% of gross income at a segment gross margin of 72.37%.
This segment is not only growing, it’s growing across all individual businesses. While the App Store set a record for the December quarter specifically, Apple Music, Video, advertising, all payment services (including Apple pay), and the iCloud set all-time quarterly sales records.
Why this is so important is not only because this segment punches above it’s weight class in terms of margin, but these revenues, unlike with the product segment, pays the firm in the form of subscription… or recurring revenues. That’s infinitely more valuable to investors than a sales as you go model, which is why Wall Street over the past couple of years has re-rated Apple in terms of multiples. The firm now trades at roughly 28 times forward looking earnings.
Apple reiterated the firm’s intention to get to cash neutral over time. That’s why that $80B net cash position mentioned above is such a big deal. That’s why the enormous cash flow is so important. Over the three months reported, Apple returned $25B to shareholders. That includes $3.7B in dividends and $20.4B in repurchased stock. Apple retired 123M shares over that time frame.
There is none, basically. Again. Apple CFO Luca Maestri did say that supply constraints should ease as the quarter concludes, which is in March. Without offering numbers, Maestri also said that the firm expects to report “solid year over year revenue growth” for the current quarter. That growth is expected to hit double digits (in percentage terms) for the services segment.
By my count, 17 five star rated (at TipRanks) sell-side analysts have opined on Apple since Thursday night. All 17 rate AAPL as a “buy” or their firm’s buy equivalent. The average target price across those 17 analysts is $198.12, with a high of $220 (Sydney Ho of Deutsche Bank) and a low of $169 (Tim Long of Barclays). Among notables, Morgan Stanley’s Katy Huberty, who has a $210 target price, wrote, “Apple has the world’s most valuable technology platform with 1.8B active devices and is entering FY22 with strong tailwinds driven by its strongest portfolio of Products and Services in years.”
As AAPL shares attempt to recover from an early 2022 sell-off set up by a “double top” formation, the shares appears to have found some footing at the 61.8% Fibonacci retracement level of the early October into year’s end rally. Readers will note that both Relative Strength and especially the Full Stochastics Oscillator are only just recovering from technically oversold conditions. The daily MACD remains badly damaged at least for now.
– Target Price: $191 (reiteration)
– Add: Down to $148 (200 day SMA)
– Panic: $145 (break of that line)