APPLE INC. (NASDAQ: AAPL) stock sold off in after-hours trading on Thursday following fiscal fourth-quarter earnings and revenue figures that exceeded expectations. Despite that, AAPL stock dropped 4 percent on the news.
Guidance for the holiday quarter was the initial disappointment, with projected revenue not quite up to what analysts had hoped for.
Here’s a look at the Q4 2018 AAPL earnings report:
Apple earnings by the numbers. Revenue in the September quarter came in at $62.9 billion, up 20 percent from the same quarter last year. Analysts were expecting $61.57 billion.
Apple stock earnings per share clocked in at $2.91, up 41 percent from the $2.07 per share it earned a year ago. That number easily exceeded the $2.78 per share expected by Wall Street.
The Cupertino, California-based tech giant also guided for revenue between $89 billion and $93 billion in the all-important holiday quarter. The midpoint of $91 billion was materially worse than consensus estimates of $92.91 billion, which was a major factor in the stock’s post-earnings reaction.
Through the close of trade on Thursday, AAPL stock had risen 29 percent year-to-date.
Apple: owning the high end. Since Steve Jobs and Steve Wozniak founded Apple in the 1970s, the company has been geared toward the high-end of the market and the consumer that cares about performance.
That’s a valuable part of the market to own, especially when the market size grows to become mainstream. Though Jobs has passed on, his successor, CEO Tim Cook, hasn’t ceded any ground, and last year, the price tag for Apple’s best-selling product, the iPhone, reached four digits.
The newest iPhone models, released in September, didn’t get cheaper. The cheapest model is the 6.1-inch iPhone XR, starting at $749. But the 5.8-inch iPhone XS sells for $999, while the 6.5-inch iPhone XS Max starts at $1,099
Given AAPL shareholders already saw the benefits of the iPhone price hike last year, some of the incremental benefits going forward won’t just come from larger unit sales, but from its other product lines – and this week, Apple boosted prices on those, too.
The new Mac mini – a desktop computer – will go for $799, well above the $499 price for previous Mac minis. That said, AAPL claims the newer version is five times faster.
The new MacBook Air, featuring Retina display and Touch ID, sells for $1,199, a 20 percent hike from the previous $999 price. Apple also released a new thinner-than-ever iPad Pro, available with 11-inch ($799) or 12.9-inch ($999) screens.
Shareholders don’t need to wait to start seeing the impact of Cook’s steady price hikes, however. In the September quarter, the iPhone’s average selling price (ASP) was $793 – an all-time high and roughly 10 percent higher than its impressive $724 ASP the quarter before.
“Apple continues to push the boundaries of average selling price for its array of iPhones – the macro value story for Apple is undeniable,” says Said Ouissal, CEO & Founder of Zededa, a Silicon Valley-headquartered edge computing startup.
AAPL catalyst: services revenue. By phasing in these price increases, first in the flagship iPhone, then in the less popular Mac and iPad lines, Apple is setting itself up to keep revenue and earnings growth going even if unit sales don’t budge much.
But price hikes only go so far for AAPL stock owners. Services revenue – iTunes, App Store, Apple Pay and Apple Music, to name a few – is where the real growth lies.
Services revenue grew 17 percent to $9.98 billion in the fourth quarter. While marginally lower than the $10.2 billion expected by FactSet, it’s not far off, and still a healthy pace of growth.
Services revenue is enormously important to the future of AAPL stock because of how high-margin and scalable these software-centric segments are.
After-hours selloff: overdone? “The initial stock drop despite beating expectations highlights the pressure on management teams,” says Greg Portell, lead partner in the Consumer Products and Retail practice at management consulting firm A.T. Kearney.
“Investors not only have an expectation of what performance will be but also how they will achieve those results. It opens management teams to short term second guessing even when overall performance supports higher confidence,” Portell says.
Apple, which became the first-ever trillion-dollar company this year, remains a powerhouse stock, and though its days of massive growth are behind it, shares are reasonably priced.
Besides, 20 percent top-line growth and 41 percent earnings growth? That’s nothing to scoff at in the first place. With a modest 1.3 percent dividend and big-time share buybacks to boot, it’s hard to go wrong with AAPL in your portfolio, even if the market, momentarily, disagrees.