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Friday, April 19, 2024

Opinion: Apple’s ‘forecast’ suggests worst stretch for sales growth since 2016, but stock is still headed higher

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Apple Inc.’s investors showed enthusiasm after the company beat on earnings Thursday and announced billions more dollars on their way to shareholders, but they may have missed some important guidance.


shares gained more than 2% in after-hours trading Thursday, as iPhone sales grew unexpectedly and analysts heaped praise on the most valuable U.S. company — Dan Ives of Wedbush Securities called the earnings “LeBron-like results,” referring to basketball legend LeBron James, while CFRA Research’s Angelo Zino called Apple a “safe haven for investors” amid a dividend hike and a new share-repurchase plan.

But revenue still declined year over year, falling to $94.8 billion from $97.3 billion. And executives predicted that sales would decline yet again in the current quarter, which would be the third consecutive quarter of revenue declines, something Apple has not experienced since 2016.

While Apple stopped giving official financial guidance during the early stages of the COVID-19 pandemic and has not resumed the practice, Chief Financial Officer Luca Maestri indicated in the conference call that another revenue decline is anticipated.

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“We expect our June quarter year-over-year revenue performance to be similar to the March quarter, assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter,” he said.

Apple saw its overall revenue decline 2.5% in the quarter reported Thursday, due to a 26.3% drop in Mac sales and a 12.7% decline in iPad sales. IPhone, with growth of 1.5%, and services, which grew 5.5%, were the stars of a middling quarter.

Read more about Apple’s sinking Mac sales

Another 2.5% decline year over year would put Apple’s sales at less than $81 billion in the current quarter, more than $3.5 billion lower than Wall Street’s consensus estimate, according to FactSet, and would make analysts’ average estimate of $388.3 billion for the full year a tougher target to hit.

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Apple executives remained fairly optimistic on the company’s call, though, with Chief Executive Tim Cook citing the continued growth in services as proof of its strong ecosystem, cheering on an incredibly resilient supply chain and pointing to stellar growth in emerging markets.

There were few discussions of turbulence for Apple, though Maestri noted a tougher environment for advertising and mobile gaming.

“Of course we’ve got the issue around the macroeconomic environment, particularly in advertising and in mobile gaming. But outside of those areas, the behavior of customers continues to be pretty consistent that we’re doing particularly well,” Maestri said.

Full earnings coverage: Apple earnings show surprise jump in iPhone sales and a 4% dividend hike

It is possible that Apple executives are just being very cautious amid uncertain economic times — three months ago, Maestri gave almost the same forecast for a repeat revenue decline, but Apple actually improved from a 5.5% drop to 2.5%. Outperforming the forecast by a similar amount would put Apple’s revenue growth into the black in the current quarter.

There is little to worry about at Apple — even with declining revenue, the company is putting up huge profits and shipping even more money back to investors, and it seems “We will perform similar to this quarter” may be Apple’s regular forecast until executives return to formal guidance. But expect forward estimates to change in the days ahead as analysts digest the guidance they did receive and return to their spreadsheets, and that could sway Apple’s stock a different way in the near-term once it happens.

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