Thursday, November 15, 2018


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Apple’s stock sank in Friday’s premarket, a day after the company reported disappointing iPhone shipment data and provided guidance for its first fiscal quarter that fell short of analyst expectations.

“The ‘jaw dropper’ last night was when Apple announced it will stop providing units/ASPs for iPhones, Macs and its other product lines,” Ives said in a note Friday. “The Street will find this a tough pill to swallow this morning as the transparency of the Cupertino story takes a major dent given that tracking iPhone units has become habitual to any investor that has closely followed the Apple story for the last decade or more and is critical to the thesis.”

Jefferies analyst Timothy O’Shea said the decision may fuel fears that Tim Cook-led company may be trying to conceal softer sales in the future.

“Apple will stop disclosing unit sales figures next quarter, fueling fears the company has something to hide,” O’Shea told clients in a note. “But Apple will disclose Services gross margin for the first time ever, a potential catalyst for the stock.”

Here’s what Wall Street’s major analysts thought of Apple’s latest results.

Jefferies (Buy)

“AAPL reported strong 20% topline growth on record iPhone and Services results, with 41% EPS growth driven by the buyback. AAPL will stop disclosing unit sales figures next qtr, fueling fears the company has something to hide. But AAPL will disclose Services gross margin for the first time ever, a potential catalyst for the stock. We believe AAPL intends to tell a compelling Services story, which we believe has 2x higher gross margin than hardware and improving.”

BMO (Market Perform)

“AAPL beat the September quarter on better iPhone ASPs. Service revenue missed our/consensus estimates slightly. Guidance was light on revenue, in line on gross margin and contained higher opex. We believe that the new iPhones are boosting ASPs nicely, but unit growth is still lacking. We are skeptical about the sustainability of ASP increases as a growth driver. Management will no longer provide unit numbers, and some investors may be disappointed by the lower level of disclosures. We are lowering our estimates and price target, and remain Market Perform.”

Piper Jaffray (Overweight)

“With slightly weaker guidance for the Dec. quarter and the company’s indication that it will provide less product level disclosure (no units or ASP), some investors will assume iPhone units are trending poorly. With increasing disclosure coming for services (gross margin), we believe Apple is simply trying to change the focus towards the overall installed base and services revenue per user. Maintain OW, PT remains $250.”

RBC Capital Markets (Outperform)

“AAPL reported modest upside to Sept-qtr results with no notable slowdown from China as better iPhone ASP’s and stable GM’s enabled revenue and EPS upside vs. expectations. The disappointment from this print will be A) their decision to stop providing iPhone units/ASP information going forward and B) Dec-qtr gross-margin guide was underwhelming vs. expectations given memory tailwinds. Positively, the underlying revenue narrative remains – AAPL is seeing better revenues trends driven by strong ASPs (+28%), stable iPhone units (+2%) and sustained services growth (+27% ex 1x $640M adjustment).”

Goldman Sachs (Neutral)

“Apple reported strong FQ4 revenue, but missed on FQ1 guidance due to weakness in EMs and adverse currency movements. The company said they did not see weak consumer demand in China in FQ4 but we believe FQ1 guidance may still assume some potential for weaker demand there given ongoing macro uncertainty. As we had expected heading into the print, ASPs were strong (7.5% beat) and we are taking up our ASP numbers for FY19, but reducing our iPhone units estimate. Apple also announced that they will stop providing unit data beginning next quarter though they will begin providing margins for both services and product. … Overall, our FY19 EPS declines by 5.5% and we are taking down our 12-month PT to $222 from $240 based on a 16x P/E multiple and our lower earnings forecast.”

Wedbush (Outperform)

“The “jaw dropper” last night was when Apple announced it will stop providing units/ASPs for iPhones, Macs and its other product lines. The Street will find this a tough pill to swallow this morning as the transparency of the Cupertino story takes a major dent given that tracking iPhone units has become habitual to any investor that has closely followed the Apple story for the last decade+ and is critical to the thesis. As explained on the conference call we understand the logic of not providing these metrics anymore given that ASPs are all over the map and a slew of new smartphone releases has catalyzed Apple to focus more on overall segment revenue rather than myopic quarterly unit sales. However, the skeptics will point to Apple doing this right at the critical juncture where higher ASPs are making up for slower unit sales which remains the worry and the stock will get hit accordingly this morning.”

Bernstein (Hold)

“While hardly the focus of investors, Apple’s Q4 results were unsurprisingly solid. iPhone unit sales (+0.5% year-over-year) were in-line with consensus, but as we had expected, iPhone average sales prices ended up growing markedly (+28%), leading to a revenue and EPS beat. Services revenue growth was in-line with expectations (+27% ex one-time gain). Investor focus was squarely on guidance for Q1 and Apple’s revenue guidance was not only below the Street’s, but also appears to imply -5% to -10% YoY iPhone unit growth for the quarter. Consistent with this, Apple’s commentary about its new phones on the earnings call was notably less ebullient than prior years. The upshot is that we have lowered our FY 19 revenues and EPS materially (-$7B, – $0.67). We also expect consensus numbers – which were well below the buyside’s due to low ASPs – to decline, albeit more modestly.”

J.P. Morgan Chase (Buy)

“Looking forward, while we can understand the investor disappointment relative to the headline F1Q19 revenue guidance of $89-$93 bn (mid-point of $91 bn) vs. consensus of $92.6 bn and JPMe of $93.1 bn, we believe the shortfall is largely explained by a combination of: 1) FX headwind of $2 bn, which we believe is much higher than contemplated either by consensus or JPM (e.g. less than $1 bn); and 2) Degree of conservatism embedded in management’s guidance as evidenced in the firm’s track record of hitting or surpassing the high-end of its quarterly revenue guide in three of the last four quarters. As a result of the strength in the key business drivers, we are largely maintaining estimates except for incorporating the FX headwinds. Our Dec-19 price target moves to $270 (vs. $272 prior).”

Bank of America (Downgrades to Neutral)

“We downgrade Apple to Neutral from Buy with a PO of $220. We recently cut our PO & ests. anticipating a weaker Dec guide. Post results we are incrementally concerned that not all the weakness is capture in N/T and we are likely to see further negative estimate revisions. Although the L/T opportunity is significant, we expect N/T pressure on shares driven by: (1) iPhone unit pressure from weakening emerging markets, (2) iPhone unit elasticity given significant step ups in ASPs, (3) deceleration in Services given weakening app store trends, (4) expectation of supply chain order cuts over the next few months, (5) significant positive revisions in the last year reversing to negative revisions in F2019, (6) potential flexible OLED phone from Samsung in 2019 (significant form factor change) can create share headwinds, and (7) time for investors to adjust to the new disclosures.”

UBS (Buy)

“Tepid guide will likely be read poorly against the recent backdrop of significant stock outperformance, but worth noting that revenue/EPS guide would have been spot inline excluding the re-emergence of big FX headwinds. Admittedly, even in-line probably wouldn’t have been enough and expectations were a little high – mainly around iPhone ASP (we think guide implies ~75MM units @ low $800’s ASP). The biggest story though is the elimination of unit disclosure going forward – incl. iPhone. Conceptually, given the pricing narrative and wide iPhone price point dispersion, we get the logic – but it is always better to do from a position of strength rather than one where iPhone unit sellthrough was slightly down Y/Y in Sept and implied down again Y/Y (our math) again in Dec. The math around unit growth is clear and nearly every investor knows it – the market is saturated and replacement cycles have lengthened ~3-4mos over the past few yrs.”

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