The time has come! October 29 is "Super Thursday", and four of the five FAAMG stocks will report calendar third quarter results, including Apple.
Apple's press release should hit the wires, as usual, at around 4:30 p.m. EST. The earnings call is scheduled to start at 5 p.m. EST, and will be broadcast on the company's investor relations page.
Apple Maven's coverage starts at 4 p.m. EST with a peek at other Big Tech companies' results and some preliminary thoughts about Apple. Speaking of preview, let's do a quick recap of what's to come for Apple, and what I will be paying close attention to today.
(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 Fourth Quarter
For more detailed coverage of my expectations for the current quarter, by major segment, check out my series of recent articles. For a more summarized version, below are some of what I believe to be the hot topics of the day:
- iPhone: if Apple has an excuse to underperform in this important product category, fiscal fourth quarter 2020 is the time to do it. Apple is caught in the middle of a delayed transition to its 5G-capable iPhone 12, while the iPhone SE launched early in the year is already "old news". I expect this to be Apple's worst-performing segment. Should I be wrong, we may see bullish action in the market. Also, expect analysts to be a little nosy about early iPhone 12 orders.
- Wearables: here is another area of concern to me. While wearables is perhaps the most exciting segment from a growth perspective, I believe that the short-term prospects are not quite as encouraging. The stay-at-home economy should be less supportive of smartwatch and wireless headphone sales, especially since Apple did not have a fresh lineup of Watch and AirPods to offer in fiscal fourth quarter.
- iPad and Mac: here is where I believe Apple will shine once again. These two mature segments, accounting for roughly 20% of total revenues, have been on fire in 2020. There has been plenty of data pointing at a strong calendar third quarter of sales for PCs and tablets, coming from research firms IDC and Gartner and also from Microsoft, just a few days ago.
- Services: another beneficiary of the stay-at-home economy, services will likely do very well. Take the App Store as an example, which I believe accounts for one-third of service revenues. Preliminary data from Sensor Tower suggests that global spending on Apple's platform has increased by more than 30% in the most recent quarter. Will strength also be seen in other services?
- Will Apple guide? the company has not offered guidance since January 2020. I suspect that this time will not be different, since iPhone 12 demand in this unpredictable holiday season remains a question mark and the impact of the COVID-19 crisis is still hard to forecast. Should Apple guide for the important fiscal first quarter, however, this piece of news alone could be the most relevant today.
Live coverage starts here!
9:30 a.m. PST: We are on standby! Uninterrupted coverage starts at 4 p.m. EST. For now, I leave you with a snapshot of how Apple stock has been performing this Thursday (amazing so far) against the S&P 500.
12:00 p.m. PST: We are only one hour away from the closing bell and uninterrupted coverage of Apple's earnings day! The stock, by the way, keeps climbing today: +4.7%. It makes me wonder how great fiscal fourth quarter results will have to be for share price to stay afloat.
12:02 p.m. PST: I will be back in about an hour. For now, here's a brief video on Apple's historical share price performance in October and the rest of the fourth quarter.
1:01 p.m. PST: That's it! the closing bell has rung! Welcome to the Apple Maven's live coverage of the Cupertino company's fiscal fourth quarter results.
1:02 p.m. PST: Apple lost steam towards the end of the trading session, but who's complaining? Shares were still up +3.7%, and they keep moving in after-hours action.
1:04 p.m. PST: Interestingly, Apple wasn't even the strongest FAAMG stock today. Facebook $FB climbed some +4.9%, while Amazon $AMZN lagged at +1.5%.
1:06 p.m. PST: Whoa, here we go! Numbers are pouring in!
1:08 p.m. PST: Alphabet $GOOG is up +8% in after-hours trading. A $3.3 billion revenue beat over consensus! Wow! This is the widest beat ever for Alphabet.
1:10 p.m. PST: Amazon is in as well, but investors don't seem too excited. Shares are bouncing around, despite the numbers looking pretty solid (including revenue outlook).
1:12 p.m. PST: Lastly, Facebook is in. Also muted market reaction.
1:13 p.m. PST: Unless I missed something, all FAAMG stocks ex-Apple have posted much better-than-expected headline numbers. But clearly, we came into earnings evening way too hot, as the stocks have not been reacting all that well (ex-Alphabet, which has pulled back just a bit).
1:15 p.m. PST: Only Apple left now! What are your expectations? Here's what the Apple Maven's Twitter poll shows:
1:17 p.m. PST: Traditionally, Apple's earnings release comes out at 4:30 p.m. EST sharp! We are less than 15 minutes away.
1:19 p.m. PST: Twitter earnings are out too, FYI, and investors are not happy! Shares down -11%.
1:21 p.m. PST: For reference, here is what Apple's segment growth looked like last quarter. Keep it as reference for fiscal fourth quarter.
1:25 p.m. PST: This is it, we are only five minutes away from seeing Apple's numbers! Let's take one last five-minute break before the report comes out. Here's a word from one of Apple Maven's sponsors, Storm-Resistant Growth:
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1:30 p.m. PST: All systems are go! Apple's earnings release comes out any moment now!
1:30 p.m. PST: Here are the numbers that Apple is looking to beat: revenues of $63.7 billion and EPS of $0.70.
1:31 p.m. PST: And shares are on the move! Uh-oh! Down -3%, per Yahoo Finance. Apple gives up its gains for the day in the first few seconds.
1:32 p.m. PST: And then some! Not great.
1:33 p.m. PST: Revenues of $64.7 billion, EPS of $0.73. That's a beat.
1:34 p.m. PST: I don't see guidance for fiscal first quarter 2021, as I expected. That's relevant.
1:35 p.m. PST: So, here's the theme: outstanding performance all over the place, EXCEPT the iPhone. Ugly 21% decline is worse than I expected.
1:37 p.m. PST: To CNBC, CEO Tim Cook says that 5G is a once-in-a-decade opportunity, and sounds optimistic about early orders of the iPhone 12.
1:40 p.m. PST: The management team certainly has some explaining to do on Greater China results, which were down -29% on revenues. I suspect that weakness there and in the iPhone segment are closely related.
1:42 p.m. PST: So far, my expectations have been met, at a high level. Outstanding quarter for iPad and Mac, not at all for the iPhone.
1:43 p.m. PST: Here is the segment revenue growth breakdown for fiscal 4Q:
1:45 p.m. PST: A few more interesting data points:
1:46 p.m. PST: the iPhone was the only segment to lag analyst estimates. The Mac beat by the widest margin, in percentage terms.
1:47 p.m. PST: Greater China revenues fell off the bunk bed, but all other geographic segments landed in positive territory. Japan had been the best performer last quarter, but it came in second-to-last this time, up only +1% over last year's sales levels.
1:49 p.m. PST: My initial thoughts are that Apple had an iPhone problem this quarter that, while directionally expected, seemed more severe than anticipated. Everything else worked very well, lifted by the stay-at-home economy.
1:51 p.m. PST: Also worth noting: gross margin expanded by about 20 basis points, but op income dropped -5% due to some rich R&D and admin expenses.
1:54 p.m. PST: EPS got support from slightly lower tax rate and the usual drop in share count, due to stock repurchases. Tax and share count upside is what we call, in the business, a "low quality EPS beat". Maybe it helps to explain after-hours bearishness as well, in addition to the iPhone and lack of guidance.
1:55 p.m. PST: Earnings call starts in 5 minutes! Let's do one last pause and return very soon. Here's a word from a sponsor:
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2:00 p.m. PST: On to the conference call! If interested, here is the link
2:03 p.m. PST: The call should have started, but we seem to have some technical difficulties in Cupertino.
2:04 p.m. PST: Time for disclaimers. Tim Cook should be next, then CFO Luca Maestri.
2:05 p.m. PST: Apple stock starts the earnings call down -4.3% after hours.
2:06 p.m. PST: Tim Cook, who often sounds congested (fun fact), starts with an important, brief message about the challenges of COVID-19.
2:07 p.m. PST: iPhone performed better than management expected, according to Cook. Interesting remark.
2:08 p.m. PST: India did well, due to new online store. The Apple Maven has talked about this subject recently.
2:08 p.m. PST: Tim Cook confirms that the iPhone was the problem in Greater China, but that demand increased before mid-September.
2:10 p.m. PST: The CEO goes back to COVID-19, and talks about how Apple has helped deal with the crisis.
2:12 p.m. PST: Tim Cook sounds optimistic about the iPhone 12 and 12 Mini, along with the new HomePod Mini. I wouldn't expect different.
2:13 p.m. PST: Will Cook talk specifics (i.e. numbers) about iPhone 12 demand? Probably not, but who knows...
2:15 p.m. PST: Tim Cook shifts to the new Watch, which was launched in September. Again, he sounds excited. Worth noting, wearable segment revenues were up +21%, better than last quarter. Pleasant surprise to me.
2:16 p.m. PST: Cook reminds audience that Apple One goes live tomorrow. I think this could be very important for service revenues, starting in fiscal first quarter 2021.
2:17 p.m. PST: "A few more exciting things in store" this year?? Tim Cook may be talking about the launch of a new Mac lineup with Apple silicon, or maybe new headphones -- AirPod Studio, possibly.
2:18 p.m. PST: Before Luca Maestri takes over, a quick look at the stock: still down quite a bit in after-hours trading, about -4.9%.
2:19 p.m. PST: CFO Luca Maestri is now speaking!
2:20 p.m. PST: He states that Apple's performance was impressive, considering no new iPhones this year. Growth ex-iPhone was +25%. Yes, pretty impressive.
2:21 p.m. PST: Luca says that iPhone demand in mid-September was up double digits. This is telling, and sounds good on the surface.
2:24 p.m. PST: Unfortunately, some technical difficulties... not sure if here or in Cupertino. Will look into it.
2:25 p.m. PST: Back on!
2:26 p.m. PST: Luca talks about the Mac, the segment with second strongest top-line performance, and the iPad. Some supply chain issues mentioned.
2:28 p.m. PST: The CFO turns to cash. Not a problem for Apple, as usual.
2:29 p.m. PST: Looking at the cash flow statement, Apple produced $80 billion in cash from ops in fiscal 2020. Strong growth of +16%.
2:30 p.m. PST: December quarter "color"... here we go!
2:31 p.m. PST: No specific guidance, only directional comments.
2:32 p.m. PST: iPhone revenue expected to grow year-over-year, despite timing issues. All other products up double digits.
2:32 p.m. PST: Flat gross margin, opex of around $10.75 billion. Shares moved favorably, by about 75 basis points.
2:32 p.m. PST: Q&A time!
2:34 p.m. PST: Tim Cook on China... Pre-mid September, demand was good. Tim seems to point at lack of new iPhone as primary reason for soft revenue numbers in China. 5G is advanced in the country, Tim thinks this is a good time to enter the market with the iPhone 12.
2:36 p.m. PST: Question on seasonality into holiday quarter. Luca Maestri dodges the question a bit, since he has not provided official guidance.
2:37 p.m. PST: Luca reminds the Deutsche Bank analyst on the delayed timing of the iPhone Pro Max release, which clearly should be a negative factor in the year-over-year comparison.
2:39 p.m. PST: Question on Apple One, and why not apply the same bundling concept to hardware. Tim Cook says "nothing to announce", but sees that consumers like to pay monthly for hardware. Hence Apple's payment plan strategy this year, which "begins to look like subscription to some buyers".
2:41 p.m. PST: Katy Huberty, bull analyst from Morgan Stanley, asks about margin profile of iPhone 12. Good question.
2:42 p.m. PST: Luca Maestri dodges a bit once again, but talks about consistency with past trends. FX is not a headwind, bill of materials looks decent, margin dynamic is good and in line with "what investors are expecting".
2:46 p.m. PST: Tim Cook reinforces his optimism about the iPhone, saying that there is "an iPhone for everyone". He finally talks about the early read on the device's demand, saying that "we are off to a great start".
2:47 p.m. PST: By the way, the earnings call has done little to support the stock, which is now down -5.6% after hours.
2:48 p.m. PST: Quick pause for my "impressions": the earnings call has had a positive tone, but few specifics. Maybe the market expected a bit more.
2:50 p.m. PST: Question on supply chain ahead of current COVID-19 wave. Tim Cook speaks of adjustments to the retail experience.
2:53 p.m. PST: Cowen analyst presses CFO Luca Maestri on margins. The executive talks about some cost pressure caused by the many new device models, offset by more favorable FX environment.
2:55 p.m. PST: Next question from Jefferies may be the last.
2:57 p.m. PST: Tim Cook speaks of supply chain constraints for the iPhone. Hard to predict when these would be resolved. Also, the supply is constrained on Mac, iPad and Watch, to an extent. Clearly, it has been a tough 2020.
2:58 p.m. PST: Good question on sustainability of Mac and iPad momentum. Tim Cook refers back to the prepared remarks: double-digit growth next quarter outside the iPhone. He mentions that there will be no return to "old normal", which makes sense to me.
2:59 p.m. PST: One more question, on iPhone pricing and the gap in ASP across the different models.
3:01 p.m. PST: Tim Cook says that Apple tries to offer customers good value, but that more specific data on how pricing is being received is still lacking.
3:03 p.m. PST: Call is over! Here are some takeaways:
- The quarter seems to have been great on the revenue side, except for iPhone sales that were very weak.
- However, Apple's management team seems very confident that softness came primarily from the timing of the iPhone 12 launch.
- A return to growth in Greater China, despite unfavorable timing of the iPhone 12 launch, is speculated. That would be great news for this struggling but important geographic segment.
- The markets did not love Apple's earnings report, but I suspect that a lot of it has to do with the spike in share price during the trading session that set the bar too high.
3:09 p.m. PST: How about you? What were your takeaways? Leave a comment below!
3:10 p.m. PST: Apple shares are now down -5.0% in after-hours trading, down about -1.3% for the whole day.
3:11 p.m. PST: With that, I thank you for joining me today! Have a wonderful day, and don't forget to visit thestreet.com/apple for continued coverage on Apple.
3:13 p.m. PST: Take care, everyone!