After Thursday’s bell, we got third-quarter tax results from technology giant Apple (AAPL) for the period ending in June. Over the past few months, there has been a lot of uncertainty surrounding the name, as the management of the coronavirus pandemic led management to retain any formal guidance. While the shares had accumulated heavily in this report, a breakout report combined with a stock split announcement sent the stock to a new high in the after-hours trading.
So much for all those concerns about Apple’s revenue that fell during the previous year’s period. As shown in the table below, the five key revenue segments showed growth relative to the respective results for the third quarter of 2019. In fact, management was calling for a decent decline in iPhone revenue, so the 1.7% increase was really a pleasant surprise. The other segments show double-digit increases, led by the iPad with a growth of more than 31% and Mac which is approaching 22%. Perhaps the only disappointment here was the services segment, which only came in at or slightly below most analysts ’estimates. Then the dollar values are in millions, except for the amounts per share.
(Source: third quarter results report linked above and Apple IR website, seen here)
Service margins showed an impressive increase of 309 basis points, while product margins continued their downward trend. A blow of more than $ 7 billion to the top line was obviously going to seep into the income statement. The lower tax rate combined with the repurchase undoubtedly contributed to the EPS figure reaching more than 50 cents before the street. Even with several analyst estimates rising in recent weeks, this report was one of the best we’ve ever seen of the company.
As mostly expected, Apple’s management did not provide any guidance for the final fiscal quarter of September. However, it was confirmed that the launch of the iPhone will be delayed a bit, which means no new phones will be available until early October. I’m sure analysts are rushing to raise estimates considerably after this huge Q3 pace, but we could see a loss of revenue / gain next time if expectations rise too much.
As we look at the stock itself, management slowed the repurchase a bit, only buying about $ 16 billion worth of shares. I mentioned this possibility in my previous article, that the huge rally could provoke some conservatism. The surprise was that a four-by-one split was announced, which will send back the actual number of outstanding shares much larger, but Apple’s shares will be reduced to about $ 100 more or less depending on current prices. Interestingly, this will cause Apple’s weight in the Dow Jones industrial average (“Dow 30”) to drop as this index is based on the stock price.
Apple shares reached $ 400 in the session after hours, setting a new high throughout the process and there will be many analysts who therefore don’t look good. The stock entered this earnings report above the average street price target, with many analysts targeting between $ 300 and $ 200 targets. We will no doubt see many goals raised after this report, and stock splitting is likely to lead to one more purchase. While we will have to wait a little longer than usual for the next iPhone launch, Apple has put to bed this week any fears that the business is being harmed by the coronavirus.
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