Apple just announced strong fourth quarter results, surprising some analysts. With a growth in services and iPad revenues, Apple is still attractive to investors.
By Chand Bellur
October 31, 2019 at 1:04 p.m. PDT
Apple Bucks Analysts’ Pessimism
Investment gurus always seem to have an opinion about Apple. With a decline in iPhone sales, some analysts have written the Cupertino tech giant off as a company past its prime.
Well aware that peak iPhone demand is behind them, Apple’s new strategy is to build services and sell other devices. Thus far, the strategy has proven successful. Apple has been able to grow services and sell wearables such as Apple Watch and AirPods. The Apple Watch, in particular, has outsold competitors by a factor of four.
As for the iPhone, Apple’s newest models are surprisingly affordable. With a more effective pricing strategy, it’s shaping up to be the best selling iPhone ever.
With these strategies in play, Apple managed to earn $64 billion in the fourth quarter — a 2% gain over last year’s fourth quarter results. This sets earnings per share at an impressive $3.03. Services raked in an unprecedented $12.5 billion. This figure doesn’t account for Apple’s newest services, such as Apple Arcade and Apple TV+. It’s widely anticipated that Apple will see a bigger growth in services in 2020.
Guidance for 2020 Q1 Earnings
Apple’s guidance for 2020 is all about setting expectations. Typically, these estimates are managed so that the company can beat expectations. With this in mind, Apple’s forecast is actually quite aggressive:
- revenue between $85.5 billion and $89.5 billion
- gross margin between 37.5 percent and 38.5 percent
- operating expenses between $9.6 billion and $9.8 billion
- other income/(expense) of $200 million
- tax rate of approximately 16.5 percent
Can Apple Deliver?
Next quarter’s outlook is very ambitious. Apple expects to earn over $20 billion more than the previous quarter. The holiday shopping season, a new iPhone and new services make this possible, however, they could fall short.
There are always risks to Apple’s revenues. The trade war with China is still unsettled, which could impact Apple’s revenues. Even worse, a possible recession could sour consumers on purchasing new products. If consumer confidence decreases, due to fear of a recession, some may cancel services. There’s simply no guarantee that Apple will hit their target.