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Here’s why Apple’s Q4 wasn’t all that bad!

By:
on Oct 27, 2022
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  • Apple reports its financial results for the fiscal fourth quarter.
  • Analyst Ivan Feinseth shares his outlook on the Apple stock.
  • Shares of the iPhone maker are currently down 20% YTD.

Apple Inc (NASDAQ: AAPL) is trading down in extended trading even though it reported better-than-expected results for its fiscal fourth quarter.

Apple stock price is responding to weaker iPhone sales

Investors are responding to iPhone sales that came in shy of Street estimates. Apple Inc had its flagship smartphone generate $42.63 billion this quarter, up 9.67% from last year, yet falling short of $43.21 billion that experts had forecast.

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But that’s not enough to put off Ivan Feinseth – the Chief Investment Officer at Tigress Financial Partners. Speaking with Yahoo Finance, he said:

Apple missed only slightly in some areas. But slight misses in this environment makes it an incredible quarter. There’s a lot of wind at their back and I think any weakness in stock price is a major opportunity to buy Apple stock.

Speaking of the environment – currency was a major headwind for Apple as well. According to the iPhone maker, it would’ve reported double-digit growth in revenue had it not been for the strong dollar.

Considering that it’s a “temporary” headwind, Feinseth is not much concerned about it.

iPhone demand continues to be encouraging

On top of that, he’s convinced the demand for iPhone remains strong. Apple started shipping its iPhone 14 only in the final week of this quarter. That is to say the Q4 did not capture the entire breadth of demand for iPhone 14.

And so, the holiday quarter that tends to be Apple’s strongest anyway, will be quite a different story, Feinseth added.

Demand is strong and Apple has a very loyal customer base. There are a lot of people with older iPhones, one to two years into their contract, that will be eligible to upgrade next year. So, this upgrade cycle is pretty powerful

Making it all the more exciting is the fact that demand is strong for the more expensive iPhones.

Price increases in ‘services’ will add to revenue

Services brought in $19.19 billion for Apple this quarter – almost a 5.0% year-on-year increase. But analysts were looking for $20.10 billion instead.

What Feinseth is focusing on, though, is the price increase Apple announced for Apple TV and Apple Music earlier this week, which, he says, will meaningfully add to revenue considering the huge user base.

For Apple TV, the cost to produce content and pay people more has gone up. But the incremental increase in revenue is much more significant than incremental increase in cost. So, it’s a net positive and they still offer great value.

Lastly, there’s “China”. Parts of that economy are still in a lockdown. Once it’s fully back online, the iPhone maker will see a further boost in demand. Feinseth concluded:

It’s a tough environment, it exists. Yet, Apple is enduring pretty well. So, to have these shortfalls from expectations that are almost insignificant is a major positive. So, any weakness is a buying opportunity. History has shown that to be the case.

Year to date, Apple stock is currently down about 20%.

Other notable figures in Apple’s Q4 earnings report

  • Total sales jumped 8.0% year-on-year to $90.1 billion
  • Per-share earnings climbed from $1.24 to $1.29
  • Consensus was $1.27 a share on $88.9 billion sales
  • Gross margin at 42.3% beat estimates by 20 bps
  • Declared 23 cents a share of cash dividend
  • Mac revenue climbed 25.39% to $11.51 billion
  • Other Products went up 9.85% to $9.65 billion

Those two segments handily topped expectations but iPad revenue (up 13.06%) missed consensus by $0.77 million, as per the press release. CEO Tim Cook also reiterated this evening that Apple Inc had slowed the pace of hiring.