Apple proves resilient.
On Thursday, the tech giant beat earnings estimates for its second quarter, seeing a small revenue growth to $58.3 billion. The company also approved a $50 billion increase in its share repurchase program and pulled guidance for the quarter ending in June.
Here’s what four experts see ahead for the iPhone maker.
A better-than-feared quarter
Dan Ives, managing director of Wedbush Securities, says Apple is in a better position than investors feared.
“I would categorize this as a small victory in a dark environment. I mean, investors, we’re expecting another one to two billion further miss on iPhones. And if you look at the services business [for Apple] … combine that with China, this is, in my opinion, better than feared. And I think not giving guidance is prudent and I think many investors were not expecting that. … Many investors going into this were thinking they were going to pause the buyback, just given some of the political and PR pressures, and I think that they’re continuing that. That’s something that’s going to be positive for the stock, because that was a fear out there, that they’d have to maybe put a pause and freeze that buyback. You combine this all, in this dark environment — I mean investors really expecting a Friday the 13th type of quarter and you didn’t really get that. And you got to give them credit relative to what they’re doing in just an unprecedented environment. Right now, the average consumer is focused on health, jobs, and groceries —not buying an $1,000 iPhone. I think that’s going to be the challenge for Apple going forward.”
A more coordinated message
Ed Lee, media and tech reporter at The New York Times, says he would like to see more coherence in Apple’s media strategy.
“We’ve heard from, in this earning season, other companies that have any kind of exposure or any kind of business in China, including Comcast from this morning, where they talked about certain positivity and seeing the workers go back into the workforce and getting back into productivity. So, China is sort of a little glimpse of the future and I think that’s certainly a positive; services certainly is a big bump. I don’t know to what degree Apple sees that as an important part of their business in terms of moments like these where you’re not going to rely on expensive hardware sales and this recurring revenue that has been really great for them for years. I still have yet to see a really coherent media strategy in terms of, are they a distributor, are they a content owner — they’ve certainly paid for stuff, but it seems like their real push is in being the platform, the way that Amazon is a platform with its video stuff. So, more coherence, more understanding the strategy around that, is something I’d like to see more about.”
Conservative earnings message
Mike Santoli, CNBC senior markets commentator, says Apple’s pullback sends a conservative message.
“I don’t think it’s necessarily all that bullish that the CEO says, you know, one month into the quarter we’re not even going to give a guess as to what the business looks like for the other two-thirds of this quarter But, on the other hand, a $50 billion buyback is probably a little below what people were looking at. So, it’s a relatively conservative message, even though it echoes what some other tech companies said, which is the second half of April, saw some firming of activity. It enables investors to say that obviously February into March was sort of the trough for whatever year-over-year trends we’re seeing in terms of demand and you can maybe hang something on that.”
Earnings growth ahead
Gene Munster, managing partner of Loup Ventures, says 10% to 15% growth is in sight.
“I do believe that Apple if you think about where they’re going, think about everything around 5G, wearables, health and wellness, streaming services, all these, I think will ultimately create earnings growth with a buyback — that was impressive what they did with the buyback today. I think this should grow earnings at 10% to 15%, very similar to some of these other large-cap names. I’ve been a tech investor my entire life. I understand that cash is usually not that valued by many other tech investors. But, the power that this company has to generate cash on a consistent basis — not in this period — but normally on a consistent basis, I think should drive at a minimum a consistent multiple with Facebook and Google and Microsoft, and that would be kind of twenty five to thirty times.”
