Philadelphia, Pennsylvania – (StockNewsDesk) – 10/22/2014 — Apple, once again, topped analysts’ estimates mostly on the back of strong iPhone 6 sales, with a continued healthy backlog of orders that should carry on into the holiday season. Many Wall Street analysts are now expecting the iPhone 6 and the new Apple line sales to be strong enough to raise guidance for next quarter and year end. Other positive news for shareholders is that the Macintosh continues to grow in popularity with Apple setting a new record for Mac sales as well.
Earnings, Revenue Beat
Tim Cook was especially ebullient in the conference call, stating Apple was “selling everything we make”. Although revenue came in higher than expected, the real outsized figure was net income for the third quarter coming in at $8.5 billion. This amounts to an earnings per share of $1.42, with a 20% gain on year over year basis. Remember, the earnings per share number has a natural upward drift, due to Apple’s share buybacks of around 2% per quarter.
Revenue came in higher on a 12% year over year basis, with the major contributor being customers upgrading their phones to the iPhone 6. Additionally, there were reports of many Android customers switching to the iPhone 6 Plus. Importantly, Apple also upgraded forecasts for next quarter’s revenue by 5% on the high end. One negative reason for the company was the weakness in iPad sales.
Strong Demand for iPhone 6
In many ways due to the success of the iPhone, Apple’s results are driven by the iPhone. Thus the company’s recent outperformance is dictated by the success and welcome public reception of its newest product. Most analysts expected sales of 38 million iPhone units, mainly due to supply constraints, however the number beat estimates with 39.3 million units. In contrast, the tablet division continues to struggle, as customers simply do not feel the urge to switch to newer tablets the way they do for phones.
The average selling price of the iPhone also increased to over $600 from $560. This was due to some customers opting for the larger screen version, as well as many choosing higher memory versions of the newer phones. The company has also maintained its gross margins with the iPhone 6 at 38%. The decay in margins has been one concern among investors in recent quarters.
Stock Price Marginally Higher
Despite the overwhelming beat of consensus figures, Apple’s stock was only up around 2% on the news. One possible explanation for this discrepancy is that most investors had higher expectations of numbers than the analyst community. Further, the success of the iPhone 6 was clear from social media and other channels. The stock made new all time highs, especially on an adjusted dividend basis.
Going forward, Apple continues to battle the Law of Large Numbers. This issue is simply the idea that, due to Apple’s current size and dominance, growth will be difficult to find a meaningful way to move earnings and revenue figures. Through 2012-2013, the company fell almost 50% as it went through the process of overturning its shareholder base as it turned from a growth stock to a value stock. It seems that Apple’s share price appreciation will be driven by dividend growth and share buybacks in the coming quarters, unless the company can successfully launch itself into new product lines.