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A less iPhone-reliant Apple has Wall Street hopeful. Here's what 5 analysts said about the tech giant's earnings report.
A less iPhone-reliant Apple has Wall Street hopeful. Here's what 5 analysts said about the tech giant's earnings report.
Ben WinckJul 31, 2019, 19:49 IST
Justin Sullivan / Getty Images
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Apple announced third-quarter earnings Tuesday afternoon. iPhone sales continued to fall as other segments pushed revenue higher.
The tech giant briefly soared above a $1 trillion market cap Wednesday morning as its quarterly report beat Wall Street estimates for revenue and profits. Apple shares rose as much as 6% in early trading.
The majority of Wall Street analysts maintained or raised their outlooks for Apple, noting that diversification of its revenue stream and upcoming services will keep profits strong before the iPhone adopts 5G capabilities.
Apple no longer sources a majority of its revenue from the iPhone. The tech behemoth's stock rose as much as 6% on Wednesday after its third-quarter earnings report beat estimates for revenue and earnings-per-share.
iPhone sales fell 13% year-over-year, but were offset by gains in its Mac, iPad, Wearables, and Services segments. Overall revenue grew by just over 1% year-over-year. Apple shares closed at $208.78 Tuesday afternoon.
The Wednesday morning surge pushed the company's market cap over $1 trillion. Microsoft was recently the only US company with a market cap over $1 trillion, though Apple was the first to hit the record in August 2018.
Here are the key numbers:
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Revenue: $53.81 billion, versus the $53.35 billion estimate
Earnings per share: $2.18, versus the $2.10 estimate
iPhone revenue: $25.99 billion, down 13% year-over-year
4Q revenue forecast: Between $61 billion and $64 billion, versus the $61.04 billion estimate
The quarterly earnings report follows Apple's acquisition of Intel's smartphone-modem business for $1 billion. The purchase sets the California-based company up to introduce 5G to its iPhones in the near future, with analysts predicting the 2020 product cycle will introduce the new technology.
CEO Tim Cook confirmed on the earnings call that the company will release the Apple Card - a credit card made in collaboration with Mastercard and Goldman Sachs - sometime in August. The card will join the App Store, iCloud, and upcoming Apple TV+ products in the company's growing Services business.
Analysts weighed in with a wide range of opinions following the third-quarter report. Here's what five of them had to say, in descending order of price target:
Citi: Investors are 'overlooking' the 'diversity of Apple's offerings'
Price target: Raised to $250 from $205
Rating: Buy
"Read this slowly and ponder it: Apple's wearable, home, and accessory category is larger than iPad sales," Citi's analyst note said. "This underscores a new theme that is starting to emerge from Apple, which we believe investors are overlooking and that is the diversity of Apple's offerings."
Upcoming updates to Mac and wearable products will boost hardware sales and continue to spread the company's revenue stream across more sectors, analysts Jim Suva and Asiya Merchant added.
Piper Jaffray: 'Launch of a 5G iPhone could drive upgrades'
Price target: Raised to $243 from $230
Rating: Overweight
The Piper Jaffray note focused on the impact a 5G upgrade cycle could have for the company.
"While still more than a year away, we believe the launch of a 5G iPhone could drive upgrades, especially as 5G network infrastructure improves and apps that leverage 5G permeate the App Store."
Share buybacks and consistent growth in non-iPhone segments "will tide investors over" until the next major iPhone release, the analysts said.
Credit Suisse: Wearables 'remains a standout category'
Price target: Reiterated $209
Rating: Neutral
"iPhone remains a sustained drag heading into what we view as a more incremental fall launch cycle and we expect tailwinds from robust growth in 'Other Products,'" a Credit Suisse analyst note detailed.
Strong growth from Apple Watch and AirPod sales should hold the company up before the iPhone's next major refresh, the team led by Matthew Cabral said. The collection of new services launching this fall — Apple TV+, Apple Card, and Apple Arcade — should also signal whether there's room for the Services business to continue its growth streak.
Nomura Instinet: 'Would have preferred a Services beat'
Price target: Raised to $185 from $180
Rating: Neutral
Though Nomura Instinet analysts boosted their target price, they found quarterly growth to land in less profitable sectors.
"We would have preferred a Services beat as Wearables carry lower margins," the team said. The note added iPhone demand was "better than feared," with trade-in promotions helping keep the phone's sales robust despite the minor update cycle first unveiled in September.
Rosenblatt: 'iPhone sales will continue to be disappointing'
Price target: reiterated $150
Rating: Sell
"We remain concerned about the potential of a production cut after the September iPhone launch, which may impact guidance for the December quarter," Rosenblatt analyst Jun Zhang wrote in a Wednesday research note.
Though Zhang praised the company for its increased AirPod shipments, the analyst sees Apple as still depending on the iPhone to move forward. Stabilizing costs for memory and other device components will keep Apple from improving its gross margin.
"We believe the risks for the company to guide down will most likely occur in CQ4, after the new iPhone launch in September, and we think iPhone sales will continue to be disappointing."
