How did everyone get their estimates on Apple so wrong? So very, very wrong? The company totally blew away any expectations that the Street had for the last quarter, crushing them.
On Tuesday evening in the US, Apple presented its results for the quarter to end 27 December 2014, its first quarter of the current financial year. It was the most successful three months of any company in corporate history.
The highlights include higher gross margins — 39,9% — and 65% sales outside of the US. Most impressive was the fact that the company managed to sell 74,5m iPhones in a single quarter, a record.
The results were littered with records. Revenue for the quarter was 30% higher than the prior quarter at a whopping $US74,6bn, with earnings of $18bn. Basic earnings per share clocked $3,08, above $3/share for the first time and a whole $1 stronger than the same reporting period last year.
Other highlights were that the company shipped its billionth iOS device, which happened to be a space grey 64GB iPhone 6 Plus. It’s kept the iPhone for posterity. How many other companies can you think of that have sold that many units — especially bearing in mind the devices aren’t cheap.
The results would have even even better if there had not been, as the company put it, fierce foreign exchange volatility. Cash on hand? $178bn and a sequential (from the prior quarter) of $22,7bn. That amount is just mind-blowing.
Let’s now match these results against expectations. One of the very best analysts covering Apple is a fellow by the name of Gene Munster from a firm called Piper Jaffray. He expected the company to sell 65m iPhones. He got it wrong by a whopping 10m units! Why?
The answer seems to be China. Revenue there soared by 157% compared to the prior quarter and it is now Apple’s second biggest market and potentially, as soon as next quarter, the biggest. And bearing in mind the iPhone 6 was only released in China in October, that’s just astonishing.
And Apple’s results are all about the iPhone. But Apple Watch is coming. When? April, folks, April. It’s definitely a growth product, from a zero base. It will be one to watch, that is for sure.
But where is Apple’s future growth likely to come from? In the coming days, people will predict that this is as good as it gets. That always happens.
Consider, however, that even the Mac business line is still growing, despite a flat PC market. Mac revenue for the quarter was “only” $6,9bn, up by 9%.
It’s true that iPad sales fell, but the excitement about the product remains. The upgrade cycle is not as frequent as it is with smartphones. I have an iPad — the original version — and I feel no need to upgrade, as it does everything that I want. For now.
Apple’s guidance for the current quarter, post the boost of the Christmas period, is as follows: revenue of between $52bn and $55bn, and gross margin of between 38,5% and 39,5%. That’s marginally ahead of expectations, too.
The dividend will possibly get a review in the coming months.
We continue to hold and accumulate the stock. There’s little doubting that there will be a slew of analyst reviews, moving 12-month price targets higher and higher, in the next little while.
At the moment, the company looks unstoppable, as do its products.
The share was trading up by more than 8% in morning trade in New York on Wednesday. It’s likely to keep on rising.
- Sasha Naryshkine works at asset manager Vestact
