Digesting Apple’s Latest Earnings Report

The 4% drop seen in Apple’s (NASDAQ: AAPL) shares during last night’s after-hours session is fairly indicative of Wall Street’s reaction to their fiscal Q4 numbers which were released just after the closing bell. GAAP EPS of $1.24 was in line with expectations, but revenue was off by more than $1.6 billion. No matter that it still showed year-on-year growth of 29%, investors have been used to the Silicon Valley giant making a habit of crushing the consensus each quarter, and this miss is a blotch on that record. 

Apple’s CEO, Tim Cook, blamed larger than expected supply constraints, specifically around the computer chips necessary in so many of their products. Somewhat worryingly though, he pointed out that these constraints are likely to get worse before they get better, adding that “it is unclear how long it will last." Aside from that though, he sees Apple hitting an “all-time record quarter” in terms of revenue for the current quarter, and this should go some way to limiting the damage from the last quarter’s miss. 

Glass Half Full

Luca Maestri, Apple’s CFO, also tried to strike a bullish tone with the release, noting how “our record September quarter results capped off a remarkable fiscal year of strong double-digit growth, during which we set new revenue records in all of our geographic segments and product categories in spite of continued uncertainty in the macro-environment. The combination of our record sales performance, unmatched customer loyalty, and strength of our ecosystem drove our active installed base of devices to a new all-time high. During the September quarter, we returned over $24 billion to our shareholders, as we continue to make progress toward our goal of reaching a net cash neutral position over time.”

It will be interesting to see how Apple’s shares perform today. At the time of writing, there was still no sign of a bounce from last night’s after-hours dip, although they hadn’t slipped down any further. In the grand scheme of things, the supply chain constraints represent a temporary headwind that can’t and won’t last forever. 

Existing investors who plan to hold, or those who plan to take advantage of this week’s dip, should focus instead on the fact that iPhone revenue climbed 47% year on year, with revenue from both their Services and Mac segments hitting all time quarterly highs. As Gene Munster, general partner at Loup Ventures noted, “supply nipped the September quarter. But, the issue seems transitory, given that for December, Apple expects solid growth, which is a surprise given the extent of the shortages. Overall, September and December quarter pain is a gain to Apple sales in 2022."

Tech analyst Tim Bajarin, of Creative Strategies, also weighed in in the aftermath of the release, saying that “the results still show strong growth in Macs and iPads, and services continue to be strong and growing each quarter. This bodes well for Apple's future growth." Indeed, the dip seen in Apple’s stock after the release barely puts shares back to where they were trading on Wednesday of this week, so for now, it’s little more than noise. If over the next few sessions shares can shake off any attempt by the bears to take them lower still, there’s every reason to think they’ll be trending up again before too long.

Longer-Term Potential

As Wedbush analyst Dan Ives summed up, "it's not a demand issue but a supply issue that continues to be the elephant in the room for Apple and every other tech and consumer player heading into the holiday season.” He believes the situation is transitory and Apple remains on track for becoming a company with a $3 trillion market capitalization.

This means that there’s potentially a bargain to be had with Apple today, and for those of us with a long enough time horizon, there are far worse additions that could be made to a portfolio than Apple stock. If shares look like they’ve no intention of going lower than last night’s dip, you can expect to see them chomping at the bit to take out last month’s all-time high at $157.