Munster: iPhone to return to growth in 2016 despite macroeconomic worries
Explaining Tuesday's earnings call, Piper Jaffray analyst Gene Munster said Apple's repeated allusions to macroeconomic headwinds might have "spooked" investors despite a better than expected guide on iPhone, but the analyst sees light at the end of the tunnel.
In a research note prepared following Apple's earnings conference call, Munster pointed to AAPL shares trading down about 3 percent in after hours action, saying the company's outlook on the world economy was more cautious than anticipated. By his count, CEO Tim Cook and CFO Luca Maestri mentioned negative macro trends nine times during prepared statements, and another four in the Q&A session.
"While we were expecting some level of cautious macro commentary given the volatility in global stock markets, decline of commodity prices, and uncertainty in the Chinese economy, the level of caution described by Apple was greater than we would have expected," Munster writes.
In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.
Apple recorded its best quarter ever in December, selling a record 74.8 million iPhones to rake in $18.4 billion in profit on revenues of $75.9 billion. In spite of its record-breaking performance, investors are concerned that iPhone unit growth, Apple's biggest revenue driver, is slowing.
Apple is guiding the first-ever decline in year-over-year iPhone sales for the current March quarter. Munster expects a year-over-year decline in the double digits this quarter, but points out Apple's own guidance is ahead of buy side expectations. Further, he believes March will likely be the nadir of iPhone growth for the next two years.
"If the macro headwinds continue to be an issue for AAPL, we would expect it to impact the entire market and would still view AAPL as a relative winner even in a down market environment as we believe tech investors would view the safety of Apple's capital return program as a positive," Munster writes.
Munster is modeling March iPhone at 53 million units, down 13 percent year over year but better than an initial negative 17 percent estimate. Judging by Cook's comments on the day, iPhone should improve throughout the year as an impending "iPhone 7" launch cycle approaches. Munster expects iPhone to be down 10 percent in the June quarter compared to 2014 and flat for the three-month period ending in September before returning to growth -- 80 million units -- in December.
Piper Jaffray adjusted its Apple price target down from $179 to $172 due to lower earnings per share, but the stock retains an Overweight rating as Munster's top pick for 2016.
In a research note prepared following Apple's earnings conference call, Munster pointed to AAPL shares trading down about 3 percent in after hours action, saying the company's outlook on the world economy was more cautious than anticipated. By his count, CEO Tim Cook and CFO Luca Maestri mentioned negative macro trends nine times during prepared statements, and another four in the Q&A session.
"While we were expecting some level of cautious macro commentary given the volatility in global stock markets, decline of commodity prices, and uncertainty in the Chinese economy, the level of caution described by Apple was greater than we would have expected," Munster writes.
In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.
Apple recorded its best quarter ever in December, selling a record 74.8 million iPhones to rake in $18.4 billion in profit on revenues of $75.9 billion. In spite of its record-breaking performance, investors are concerned that iPhone unit growth, Apple's biggest revenue driver, is slowing.
Apple is guiding the first-ever decline in year-over-year iPhone sales for the current March quarter. Munster expects a year-over-year decline in the double digits this quarter, but points out Apple's own guidance is ahead of buy side expectations. Further, he believes March will likely be the nadir of iPhone growth for the next two years.
"If the macro headwinds continue to be an issue for AAPL, we would expect it to impact the entire market and would still view AAPL as a relative winner even in a down market environment as we believe tech investors would view the safety of Apple's capital return program as a positive," Munster writes.
Munster is modeling March iPhone at 53 million units, down 13 percent year over year but better than an initial negative 17 percent estimate. Judging by Cook's comments on the day, iPhone should improve throughout the year as an impending "iPhone 7" launch cycle approaches. Munster expects iPhone to be down 10 percent in the June quarter compared to 2014 and flat for the three-month period ending in September before returning to growth -- 80 million units -- in December.
Piper Jaffray adjusted its Apple price target down from $179 to $172 due to lower earnings per share, but the stock retains an Overweight rating as Munster's top pick for 2016.
Comments
Also, don't know the number off the top of my head, but how many companies in the S&P500 are even worth 18.4bil in total market cap?
Someone who knows how to invest properly…
What surprised me is that even without the iPhone, they're still making more money than Microsoft, and unlike Microsoft, they don't really have a captive market.
His numbers may have been out in recent times, but his historical positivity sure hasn't been.
Currently, his numbers are too high as a short term target, but I have no doubt that Apple can reach those heights long term.
"Constant currency" is a valid way to convey what would have happened if there had been no "currency headwind" which is largely beyond Apples control - except it doesn't tell the whole story because as you mentioned, Apple has had to raise prices in some countries to help compensate - this always has the effect of reducing sales volumes - so if there had been no headwind, they would have sold more phones too.
Your comments are phrased in a very troll-like manner. Just because you don't understand somethings doesn't mean you should attack Apple with such negativity. Just ask nicely and someone smarter than you will explain it. The forum is literally filled with people that fit that description!
I'm set to lose a ton on call options that expire in April and July. Glad that I put most of my money in actual shares. I was actually tempted to put it ALL into options back in September. I need $119 to break even on the options - and at this point it's really not looking good. If they expire worthless, it's pretty much all of the profit I've made on Apple in the last 5 years reduced to 0.
Exxon and Apple are birds of a feather. Together they could buy the world.