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Home / Business / Apple's revenue should continue to shrink, why is the supply going up?

Apple's revenue should continue to shrink, why is the supply going up?



Apple Inc. recorded a strong sales decline in the holiday quarter. That was no surprise.

What follows could be. The company released a lower-than-expected revenue forecast for the current quarter, suggesting that the slowdown in iPhone sales could lead to significant revenue declines.

Analysts already expected a slight decline in revenue before each quarter of the current financial year

AAPL, -1.04%

released the forecast for the March quarter on Tuesday, claiming revenue for the quarter of $ 55-59 billion, compared to the FactSet consensus of around $ 59 Billion US dollars and the total value of the previous year of 61

.1 billion US dollars.

Live Blog Recap: Apple Gains Let Stocks Rise

These types of sales declines would not normally cause a stock to jump higher, but the Apple stock rose in the aftermath. Hour trading by more than 5% and left a question: Why?

Wedbush analyst Daniel Ives said three reasons in a telephone conversation on Tuesday afternoon, starting with the sales forecast. While it was below analysts' consensus expectations, Ives said it was still higher than the market feared.

"There was a fear that they could lead to under 55 billion dollars," said Ives.

Two factors both had to do with Apple's service business, which underlined the company as iPhone sales stagnated. While iPhone sales declined 15% from the previous holiday shopping quarter, software and service revenues increased more than 19% after changes in revenue recognition rules. Ives pointed out two specific service items from Apple: the gross profit margin and the number of users paying for subscriptions.

See also: China's slowdown could severely affect global economic growth

The gross profit margin for the services business was the peace offer that Apple offered while it took away the sale of individual products such as the iPhone and the retail sector a metric that does not look good for Apple. Apple said its gross margin for services such as Apple Music, iCloud and Apple Pay was 63% in the quarter, which was better than expected, Ives said.

"The line in the sand had a gross margin of 60%," said the analyst, who has an outperformance rating for Apple shares with a target price of $ 200. "The services business was perhaps something that underestimated [investors] in terms of its profitability."

Ives compared it to Amazon.com Inc.

AMZN, -2.69%

broke out of its cloud computing department, which also provided insight into higher-margin business, which was watered down by a much larger core business with lower margins.

"When Amazon broke AWS margins, it was a defining period for Amazon, as investors granted them more credit," he said.

For more: Amazon's earnings growth engine has nothing to do with e-commerce.

The type of revenue that Apple makes through these businesses also makes a big difference. Ives pointed to the number of paid subscriptions that Apple has as an important disclosure, as this is a recurring revenue stream that is more predictable. This is a key factor for Apple, as iPhone users wait longer on average before buying a new phone.

"We now have over 360 million paid subscriptions to our service portfolio, an increase of 120 million over the previous year," said CFO Luca Maestri in a teleconference on Tuesday, "given the ongoing strength and momentum in this segment In the business, we now expect the number of paid subscriptions to exceed half a billion over the course of 2020. "

BTIG analyst Water Piecyk pointed to another figure in Apple's forecast of 37% to 38% %, profitability signaling will not decrease with sales.

"The good news is that the lower sales forecast, which was likely caused in part by price reductions in certain markets, did not result in a weak margin forecast the investors who fear the worst, "wrote Piecyk, while spending $ 6 billion a bzog 2019, the iPhone sales was estimated based on the weak forecast of his estimates. He has also quoted his target price of $ 189 from $ 197 on a Tuesday night.

Overall, Apple's late-trading share hike on Tuesday seems a relief as investors receive information that was not as bad as feared, by 27% in the last three months, a period in which the S & P 500 Index

SPX, -0.15%

was basically break-even. However, this type of rally may not take long, as it depends entirely on Apple's keeping promises on Tuesday.

"Now it's up to this March guide – it's imperative they get hit," said Ives The big failure of the initial forecast for the holiday quarter, which required Apple's early warning. "There is a big credibility problem in predicting the sale of iPhone."

Updated with additional comments for analysts.

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