3 Critical Growth Factors That Were Likely Missed By Almost Every Apple Investor Last Week

Last week, Apple reported numbers that were mostly well received by investors and the sell-side both. Shares of Apple, which were pricing in a $4 and change per share move going into the earnings event, barely moved the next day, but still closed last week at close to all-time highs.

All in all, the company beat on the earnings front was in-line on the revenue front and guided slightly lower for the current quarter ending in June. More importantly, the company boosted its capital return program by $50 billion and extended the program to March 2019. The share repurchase program was extended to $210 billion from $175 billion and the quarterly dividend was upped to $0.63 per share, up 10.5%.

However, most investors seemed to have missed three key points in all the hoopla about iPhone sales, sell-throughs and units and ASPs, declining iPad numbers and all the other stuff that goes along with Apple's earnings events. They are as follows:

  • Mac sales were up 14% year-on-year to 4.2 million units versus 4.03 million units in the same period last year. This is especially noteworthy given the fact that, according to market research firms like IDC, Gartner and the rest, the market for PCs continues to shrink as the shift to mobile picks up pace globally. If one were to just use a similar growth rate for the next three years, Apple will have sold 6.2 million Macs in the March quarter of 2020. Not too shabby, huh?
  • Service revenues were up 18% year-on-year to $7.04 billion versus $5.99 billion in the same quarter last year. Using the same growth rate over a similar three year period, will give us $11.57 billion in services revenue for the March 2020 quarter. Apple has said it hopes to hit $20 billion in annual services revenue by then. I would say that goal is well within reach, wouldn't you? Services revenues were the highest ever for the company in any 13-week period.
  • Finally, other products revenues which includes the Apple Watch, iPods, AirPods, Beats, et al were up a whopping 31% year on year to $2.87 billion versus $2.19 billion same quarter last year. Again, using the same rate of growth over the next three years would provide Apple with $6.5 billion in other product revenues for the March 2020 quarter. Just as a point of interest, Apple said that Watch sales doubled in the March quarter on a year-on-year basis.

Again, just the three areas that I have highlighted above could be enough to show that Apple is still a growth story, despite iPhone sales that are essentially flat year-on-year given the lack of a new form factor the last several years. Add in the new iPhone 8/x that will be unveiled this fall and I would say that growth is not only back, it's probably back with a vengeance. Once the new phones are out and growth resumes not just here at home but also in places like China and India, growth could even be back with a bang.

Tim Cook stated on the earnings conference call that iPhone sales were adversely affected by "earlier and more frequent reports about future iPhones."

Most importantly, we are not even talking about what else is in Apple's pipeline, be it cars/autonomous driving technology, home speaker product like Echo/Dot, Apple TV sets or anything else that has not yet leaked out.

So, when you hear the kindly uncles lament the lack of growth from Apple, nod at them equally sagely and continue to buy Apple whenever Chuckles (Mr. Market) provides you the opportunity.

Words to the wise.

(Long aapl, long and short aapl options)

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