Apple Stock This Week: Earnings Season In The Rearview Mirror

In the week after Apple released its first quarter financial results, the stock moved 2% higher in the past five days. The Apple Maven highlights the main discussion topics of the week.
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Apple’s earnings: This is what impressed most

In the 2020 holiday quarter, Apple delivered some of the best financial results ever. The Apple Maven reviews Apple’s three key accomplishments in the period, and counts down to what was most impressive.

3. iPhone sales spike

Among all of Apple’s businesses, what impressed me the most was the iPhone. Growth of 17% was absolutely stunning for a product that already generates a whopping $150 billion in sales per year, on average.

2. Margins expand fast

Apple delivered earnings per share of $1.68, a number that topped consensus estimate by the widest margin ever. One of the keys to such impressive bottom-line performance was margins.

1. China comes back to life

It is impossible not be amazed by revenue growth in Greater China: 57% year-over-year.

The region once accounted for one-fourth of Apple’s total revenues, but the proportion dropped to only 15% in fiscal 2020. For a moment, it looked like what was once a growth engine had become a huge disappointment for the Cupertino company

Wall Street is thrilled about Apple’s earnings

Apple has topped expectations by a mile and a half when it reported fiscal first quarter earnings. Look at what Wall Street had to say about the financial results and the appeal of owning the stock at current levels.

First, note that many analysts have raised their price targets on Apple stock after earnings. A few examples include Barclay, from $116 to $138 per share; and Piper Sandler, from $135 to $160 apiece.

Apple is considered a “buy” by Wall Street analysts, with an average price target of about $145 per share. At $145, Apple has nearly 10% upside potential.

Apple: In dire need of cash?

Apple has been aggressively raising cash through debt and has just issued $14 billion in bonds. This figure represents about 12.5% of the company’s total debt as of fiscal first quarter 2021.

When cash is so cheap

Hardship is not at all what has been happening here. Rather, Apple seems to be taking advantage of historically low interest rates (see graph below on the 10-year treasury yield) to replenish its coffers with “cheap money”.

In absolute values, nearly $200 billion in cash and equivalents, including marketable securities, is mind-boggling. Net of debt, the $79 billion is still quite impressive.

One of the most likely uses of Apple’s new cash will be to buy back shares. Since 2013, the company’s share count has decreased from about 26 million to only 17 million now – a drop of 35%. The fewer shares outstanding there are, the higher earnings per share tend to be.

Amazon earnings: Strong results and a farewell to Jeff Bezos

Here at the Apple Maven, we discuss the Cupertino company and its stock first and foremost. But every so often, it helps to look at how some of its Big Tech peers have been performing. 

As expected, Amazon delivered outstanding holiday quarter results, driven by strong e-commerce and cloud adoption. But the announced departure of Jeff Bezos as CEO of the company stole the headlines.

In my earnings preview, I called out the likely trends in the fourth quarter of last year: strong e-commerce and accelerated adoption of cloud services. Both helped to propel Amazon’s revenues and earnings per share higher year-over-year by an impressive 44% and 118%, respectively.

It will be interesting to see if investors will remain comfortable and confident in Amazon, even without its founder at the helm, or bail out in fear of the company’s future.

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  • (Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)