On Tuesday evening Apple Inc. reported a strong December Quarter results but guidance was weak for the rest of the year due to a deteriorating macro environment. The main highlights from the results were;
* Apple had the strongest financial quarter ever with $75.9billion in Revenue.
* 74.8 million IPhones were sold – an all-time high but below market expectations.
* Challenging global macro environment is impacting outlook for the rest of the year.
* 75% of revenue was generated outside the US.
* Negative Currency impact is estimated at 15 percent of Revenue.
* New quarterly record of Apple Watch Sales. No figures were given.
* Best quarter ever for Apple TV sales.
* Consumers have already spent billions using Apple Pay.
* Apple Music has over 10 million paying subscribers in less than four months after going live.
Revenue
Revenue came in at $75.9 billion which disappointed market analysts. Apple sold 74.7million iPhones during the quarter. Declining sales were anticipated due to supply chain activity. However, most of the negative impact was expected between January 2016 and September 2016, when the IPhone 7 is launched.
Earnings per Share
Apple delivered earnings of $3.28 per share, ahead of consensus despite a weakening Chinese market and weaker trends in the US and Japan. It is estimated that the impact of a stronger dollar amounts to around 15 percent of revenue. Apple has adjusted pricing of product around the globe in order to mitigate this effect. However, this has often impacted sales numbers.
Guidance
Revenue guidance for Q2 2016 is between $50 billion to $53 billion, well below consensus estimates. This will probably impact analysts’ price targets on the stock and drive the market price down in the short-term.
Apple Q1 results were satisfactory, or even excellent, given the difficult macro conditions. Growth in China remains strong; however, it is not strong enough to make up for deteriorating sales elsewhere. The first half of 2016 will be a difficult year for apple as a difficult market environment will not help sustain sales of an ageing IPhone. However,
expectations of a new IPhone in September, coupled with improving economic conditions towards the end of the year should provide support for the stock at current levels.
This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.