This is it! It is time for the most valuable company in the world to report fiscal first quarter 2021 earnings.
On January 27, about half an hour after the closing bell, Apple's numbers should be released. The earnings call will follow, at 5 p.m. EST (2 p.m. PST). Readers can listen to the live broadcast on the company's investor relations page.
The Apple Maven's coverage of this important event will start at 4 p.m. EST (1 p.m. PST). But first, let's preview Apple's financial results, and refresh our memories on what will likely be the key topics of conversation this evening.
(To skip the preview, scroll straight down to the "Live Coverage Starts Here!" section for real time insights, starting at 4 p.m. EST).
Previewing Apple's Fiscal First Quarter
The Apple Maven has recently published a series of preview articles on Apple's earnings. Below are some of the highlights:
- iPhone, first and foremost: It is widely expected that fiscal first quarter will be mostly about Apple's smartphone segment. The delayed launch of the iPhone 12, in 2020, means that quite a bit of pent up demand for the device will likely translate into strong sales in the holiday quarter. There is no shortage of evidence suggesting that this will be the case. A 30% increase in device shipments would not be out of question, after sales tanked in the pre-holiday period (see chart below, orange bar).
- Next, the Mac: The other important story in the quarter will likely be the Mac. Apple has redesigned the device from the ground up, with the introduction of the M1 chip in November. The company will likely benefit from two factors: (1) the stay-at-home tailwinds pushing PC sales higher across the industry, and (2) the new lineup of Mac Mini and 13-inch MacBook Air and Pro devices.
- Will China recover? Wrapping up the top 3 key topics will be Greater China. The region has seen revenues tank since 2015, back when the geographic segment accounted for as much as one-fourth of total company sales. Now, an early read on device shipments suggests that China will likely do much better in the holiday quarter. Could this be the turnaround that Apple needs to boost investor sentiment even further?
When Apple releases its earnings report, compare the actual numbers to the estimates below (red dotted box). Relative to early January, analysts today have become more optimistic about Apple's first quarter results.
Still, I believe that the Cupertino company will top consensus expectations by a wide margin. Should I be right, the stock could move higher in after-hours trading.
Time will tell! Stay tuned this Wednesday to find out more...
Live coverage starts here!
7:15 a.m. PST: We are on standby! Please check back soon for minute-by-minute live coverage, starting right after this Wednesday's closing bell.
7:30 a.m. PST: Just a quick note to highlight that Apple has kicked off the trading day up +0.5%, well ahead of the S&P 500 and Nasdaq (see below). Where will we be in about 6-7 hours?
12:52 p.m. PST: Well, it's time to take our seats and get ready for the closing bell!
12:53 p.m. PST: Apple is not looking very hot today. The stock is about to end the trading session down about -1.1% (it was up about +0.5% early in the morning).
12:55 p.m. PST: This is still better than the S&P 500 and the Nasdaq, both down more than -2.5%.
12:56 p.m. PST: Apple has traded very much in lockstep with the major indices today, except a step ahead of them. It tells me that the stock has moved mostly on macro factors this Wednesday, including bearish remarks from the Federal Reserve.
12:58 p.m. PST: Other stocks worth keeping track of today (yes, aside from GameStop, AMC and Express) are Tesla and Facebook. Both companies report earnings alongside Apple. Both stocks are down at least -2% for the day.
12:59 p.m. PST: By the way, I have published an earnings preview on Facebook as well. Check it out!
1:00 p.m. PST: And we are done with the trading session! The Apple Maven's coverage of Apple's fiscal first quarter earnings is now officially underway!
1:02 p.m. PST: Here is where the major stock indices ended the day... Dow -2.1%, S&P 500 -2.6%, Nasdaq -2.6%, Russell 2000 -1.9%.
1:04 p.m. PST: Facebook usually reports earnings at 4:05 p.m. EST, and Tesla between 4:10 and 4:30 p.m. EST. Apple reports around 4:30 p.m. EST.
1:07 p.m. PST: Let's talk Apple now. The stock is very close to all-time highs. Valuations have reached a peak as well, see P/E chart below.
1:08 p.m. PST: This is a tough set up for the stock today. Apple will probably need to impress to push shares higher.
1:09 p.m. PST: By the way, Facebook's earnings are out. The stock is down -6% in after-hours trading... ooops! Bad start to FAAMG earnings this Wednesday.
1:11 p.m. PST: I will reemphasize that, in my opinion, Apple's earnings will be very strong. I expect to see high double-digit growth in iPhone and Mac, and expect Greater China to show signs of life again. Will the stock react positively? That's a different story...
1:13 p.m. PST: Side note, Tesla earnings are in! The stock is down -7% in after-hours trading. Ooops again! Can Apple save the day for Big Tech?
1:15 p.m. PST: Here is what my Twitter poll says about expectations for Apple's holiday quarter...
1:17 p.m. PST: It looks like I am not the only optimist here... You can still vote by the way, follow this link to Twitter.
1:19 p.m. PST: We are about 10-12 minutes away from laying eyes on Apple's earnings report. There's still time for one last restroom break!
1:22 p.m. PST: Quick recap of how Apple's segments performed in fiscal 2020, measured by year-over-year revenue growth... iPhone -3%, Mac +24%, iPad +1%, Wearables and Home +25% and Services +16%.
1:24 p.m. PST: There's one more thing that I will be very curious about tonight. Will Apple finally provide guidance once again?
1:25 p.m. PST: I think that the answer here is "no". There is still enough COVID-related dislocation impacting Apple's businesses, not to mention the trajectory of the 5G "super cycle". While would Apple's management team want to stick their necks out at this moment? We'll see...
1:28 p.m. PST: We are only a couple of minutes away. Apple is trading down -1.3% after hours, but anything can happen after the earnings report comes out.
1:31 p.m. PST: Ready for this?
1:32 p.m. PST: Let's go!! EPS of $1.68 is a large beat! But the stock is not really going anywhere yet...
1:33 p.m. PST: The 27-cent earnings per share beat is the widest of the past five years, maybe ever.
1:34 p.m. PST: Same can be said of the $8.2 billion revenue beat over consensus... whoa!
1:35 p.m. PST: Stock is down -1% in after-hours trading. Let me plug in some numbers, stand by...
1:38 p.m. PST: Ok, so a couple of things stand out to me. Mac revenues were up 21%, which is amazing! Above my expectations...
1:40 p.m. PST: Next, Greater China revenue growth reached 57%. Massive! For reference, the highest growth rate in the previous 8 quarters in the region had been 3% only.
1:42 p.m. PST: iPhone growth reached 17%, which is very solid and well above consensus. However, I am not going to lie, I was expecting a bit more. For reference, iPhone revenues dropped by more than 20% in the previous period, and I was hoping for more of an offset.
1:44 p.m. PST: So far, so good! Let's look around the P&L now...
1:45 p.m. PST: Gross margin of almost 40%. This is amazing! The year-over-year margin expansion was about 140 basis points. This is more than I have seen since fiscal 2018 at the very least.
1:47 p.m. PST: What is most likely happening here is (1) gain of scale, with total revenues up an impressive 21%, and (2) a slight revenue mix shift towards services, a segment that usually carries better margins.
1:50 p.m. PST: Speaking of gains of scale, opex increased by less than 12%, in line with the average of the previous 8 quarters. Except this time, revenues were so much higher that operating leverage led to much better op margins: 30.1% vs. 27.8% in the comparable period last year. Impressive!
1:52 p.m. PST: I guess the bottom line is: what a quarter for Apple! Everything looks very good at first glance.
1:53 p.m. PST: The problem may really be valuation. Apple has never been this expensive, at the very least using P/E as our measuring tool. Could the stock be out of breath at these stratospheric levels?
1:55 p.m. PST: The earnings call starts in about 5 minutes. If you want to listen to it, use this link. I will take a very short break before jumping back in.
2:00 p.m. PST: As I log into the conference call, I look at the rest of the P&L. Effective tax rate looked pretty standard, and so did the share count. Apple's EPS beat, therefore, was sheer business excellence, no "below the line" upside.
2:02 p.m. PST: The call is on! CEO Tim Cook will go first, followed by CFO Luca Maestri.
2:03 p.m. PST: All-time revenue record, including in each geographic segment.
2:04 p.m. PST: Apple stock is now in positive territory in after-hours trading. Tim Cook addresses the challenges of the pandemic.
2:05 p.m. PST: New high watermark in devices installed base: 1.65 billion worldwide. iPhone alone is over 1 billion.
2:06 p.m. PST: iPad and Mac cheered by the CEO for their roles during the pandemic. New iPad Air and first M1-equipped Mac devices were highlighted. Demand "very strong".
2:06 p.m. PST: Within wearables, record revenues for each of the sub-segments. Good stuff.
2:07 p.m. PST: First quarter of Apple One bundle mentioned as important to boost services revenues. I thought so.
2:08 p.m. PST: Apple stock still hovering around flat in after hours, minimally up.
2:09 p.m. PST: Tim Cook talks about security, and about Apple's leading role in setting the industry standards.
2:11 p.m. PST: CEO briefly talks about a number of different topics, including the political landscape of the past few weeks, social responsibility, etc.
2:12 p.m. PST: Tim Cook asks himself: "What will we inherit, after the COVID-19 crisis is over?" The CEO has always been very concerned about the broader picture, if you will. I like that.
2:13 p.m. PST: CFO Luca Maestri is up!
2:14 p.m. PST: Records all over the place, from product categories to geographic segments.
2:15 p.m. PST: Help me find one area of weakness in Apple's numbers!
2:16 p.m. PST: iPhone revenues boosted by demand for the new model, high satisfaction levels.
2:18 p.m. PST: The CFO seems to single out certain services as key to segment revenue growth. New services like News+ and Fitness+ mentioned as mere "contributors". Nothing new here, to be fair.
2:19 p.m. PST: Wearables and others looks good. CFO says that 75% of Apple Watch buyers are new to the product category.
2:20 p.m. PST: Mac revenues boosted by the new models, equipped with the M1 chip. I am impressed with revenue growth of 21% in Mac segment.
2:23 p.m. PST: Important: specific guidance will NOT be provided, but CFO expects total company revenue growth to accelerate. Interesting.
2:24 p.m. PST: Moving on to Q&A! Katy Huberty from Morgan Stanley is first.
2:25 p.m. PST: Good question about impressive gross margin expansion. CFO mentions leverage from higher sales and revenue mix, which is exactly what I anticipated earlier in our live coverage. Also, FX did not play a major role.
2:28 p.m. PST: Question on valuation being dragged by lack of visibility into new products and services. Tim Cook talks about the framework used by Apple to figure out what to launch next. I feel like this question was somewhat targeted at the rumored Apple Car... but that's just my impression.
2:30 p.m. PST: Question from BofA about the puts and takes of the iPhone growth (i.e. units vs. ASP, etc.). CFO Luca explains that customer response has been great, particularly the Pro and Max models. Strong units shipped and pricing. China called out as a bright spot, especially since this market has moved quickly towards 5G. Supply-demand balance expected for the March quarter.
2:31 p.m. PST: Question on the switcher vs. upgrader activity. CEO Cook says that both increased year-over-year, with the largest number of upgraders ever seen.
2:35 p.m. PST: Question on China, and what drove the strength there. Tim Cook says that the story was not all about the iPhone. Consumers probably delayed purchase of a new device in the previous period as rumors around iPhone 12 crystalized. Tim Cook reemphasized the importance of the 5G network being further along in the country. iPad and wearables did extremely well, above the company average.
2:37 p.m. PST: Question on services drivers. CFO Luca says that the segment was strong across the board. He mentions Apple Care as a rare weak spot due to store closures, even though revenues here still grew. Digital services were the strong performers.
2:39 p.m. PST: Question on iPhone channel inventory and seasonality. CFO Luca says that demand has been strong, and iPhone inventory ended December slightly below year-ago levels. He expects inventory to reach balance in the March quarter.
2:43 p.m. PST: Question on broad thoughts about sources of growth (again, probably a poke at the Apple Car conversation, plus VR and AR, etc.). Tim Cook says that Apple has the strongest hardware portfolio and large installed base. Still early stages in wearables. Market share expansion opportunities exist, especially in emerging markets like India. Tim Cook does not seem too concerned about lack of organic growth.
2:44 p.m. PST: Fun fact, Apple shares are now down nearly -3% in after hours, after finding some stability around flat at the start of the conference call.
2:45 p.m. PST: Another question on margins, and what has been driving the expansion. I was also very impressed by the improvement. CFO Luca says that the top line growth has a lot to do with it, as fixed costs of production do not rise at the same pace. He also mentions the favorable mix across the product categories (e.g. iPhone Pro and Max).
2:48 p.m. PST: Question about growth rates for the Mac and iPad, and what is sustainable going forward. Tim Cook says that the installed base is still expanding with switchers/new customers, and that M1 allows for a new growth trajectory. I fully agree with this assessment. He also mentions the iPad becoming a laptop/desktop replacement. Fair point.
2:49 p.m. PST: Question about iPhone outside the "hot 5G areas", like China and the US. Tim Cook says that Europe is not where it needs to be, but other regions are helping to make up for it.
2:52 p.m. PST: Question about Apple One outlook. Tim Cook says that it is still very early stage for the bundle to talk about path forward.
2:55 p.m. PST: The questions are starting to get deeper into the weeds, which is normal at the end of the Q&A session. I think that the key takeaways from the conference call are pretty clear at this point: strength was very much broad-based. The iPhone was a hit at the higher end of the spectrum, but the product category alone does not account for everything. Margins have benefited from scale. Specific guidance will not be provided, but total company revenue is expected to accelerate into fiscal 2021.
2:59 p.m. PST: Question about market share in places where Apple products are not the most popular or market leader. Tim Cook mentions India as a case study. Apple has introduced its online store in the country, and plans on launching retail stores. There is lots that can be done, according to the CEO, to improve market share all over the world.
3:00 p.m. PST: And that's a wrap!!
3:01 p.m. PST: Thank you all for joining me tonight. Please keep checking back for continued coverage of Apple and its stock, including earnings review articles that I plan on publishing in the next few days. Enjoy the rest of your day!