After months of positive news for Apple (NASDAQ:AAPL), or even years depending on how you look at it, a bit of trouble has come Apple's way with its latest earnings report. The company lost around 4% of its value in pre-market trading, and that's likely got some investors wondering if maybe now is a good time to take profit and head for the door.
The Apple Takes Some Bruising
Bad news emerged for Apple on nearly every front available with this earnings report. The company noted that iPhone sales in China plummeted, falling around 29%, according to word from CFRA Research. The impact to China sales was echoed in general, as customers weren't eager to shell out for a new iPhone in the second half of September. That prompted a drop in sales throughout much of the world as well. The sheer size of the drop-off itself was notable, as it was the largest quarterly drop the company had seen in three years.
Still, the company's earnings report should have been a success. Refinitiv estimates suggested an earnings per share (EPS) figure of $0.70, and it came out at $0.73. Revenue was actually up 1% over the same time last year, coming in at $64.7 billion. That was also enough to beat expectations, as the consensus for revenue this quarter was $63.7 billion. In another shock to Apple watchers, the company offered up no guidance for the first quarter of fiscal 2021.
A Somewhat Belated Push Toward Diversification
Apple's product line has come under fire before, as each new version of a released product tends to look a lot like the previous release, albeit with a few new bells and whistles. In recent years, Apple has moved to opening up new lines of revenue coming in, to some success; services like the App Store and the somewhat more recently released AppleTV+ have delivered substantial value. Though for many on Wall Street, the sale of the iPhone is still the indicator of choice to watch.
Don't count out the value of these services, though; while the sale of iPhones collapsed all over, it was the value of services—along with Apple's other hardware like the Mac desktop and the iPad tablet line—that actually helped Apple turn in the biggest fourth quarter it's ever seen. Services revenue alone came in at $14.55 billion, which not only beat estimates of $14.08 billion readily, but also improved on last year's figures by 16.3%.
Still a Screaming Buy
Apple is still rated as not only a “trending stock” but also among the “most upgraded stocks” by our latest research, and the proposition for Apple only improves from there. The company has held a consistent “buy” rating for the last six months, and there's still a lot of support for buying in. Right now, Apple has three “sell” ratings, 15 “hold”, and 27 “buy” ratings. When buy outnumbers hold and sell by a factor approaching two to one, it's certainly worth considering.
Moreover, the company's price target has been trending upward too over the last six months. Back then, the company had a price target of $74.13. Now, the current price target is $111.26, and given that Apple was trading at $109.80 as of this article, it's likely that price targets will be levering upward to meet reality not too far down the line. Yesterday's closing price was $115.32.
The Apple Tree Branches Out
If there is a better real-world example of the value of diversification than Apple's latest numbers, I'm hard pressed to think of it. The company's flagship line showed its biggest losses in years, spurred on by the coronavirus and the delay it engendered in the wide-scale release of a 5G iPhone. We've been considering the impact of a 5G iPhone on the company's fortunes since last December, back when people thought “coronavirus” was a fancy word for “head cold.” Yet here, Apple has demonstrated that it can still deliver value, and do so substantially, even as the iPhone loses ground.
That's not good news for Apple, necessarily; the impact we've seen on the company's share price over losses in one part of its operation demonstrate how important the iPhone is not only to Apple, but to investors' perception of Apple. Hopefully, this particular breed of tunnel vision will phase out going forward, as Apple demonstrates conclusively that it's not just a smartphone maker.
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