Apple Q3 2022 Investment Note
Apple earnings narrowly beat estimates, but supply issues stifle revenues
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Key Takeaways:
Attitude: During the Q3 quarter, Apple generated nearly $23 billion in operating cash flow, returned over $28 billion to its shareholders. Apple's June quarter results continued to demonstrate its ability to manage business effectively despite the challenging environment (supply constraints, foreign exchange headwinds, and the Russia impact). The management set the Q3 revenue record and Apple's installed base of active devices reached an all-time high. Apple admit the uncertainty in the macro environment but Apple is still optimistic on its resilience.
Guidance: Apple expects the revenue growth to accelerate during the Q4, although approximately 600 bps of unfavorable impact from foreign exchange YoY. The supply constraints are expected to be better in the next quarter compared with the Q3. However, Apple's Services revenue growth is expected to be lower than the Q3 due to challenging macroeconomic conditions. For the figures, Apple expects the Operating Expenses to be between $12.9bn and $13.1bn, plus the Gross Margin to be between 41.5% and 42.5% in the coming quarter. Besides, investors shall notice that Apple has declared a cash dividend of $0.23 per share, which is payable on August 11 to shareholders of record on August 8, 2022.
Product: On June 2022, Apple unleashed the completely redesigned MacBook Air and a new 13-inch MacBook Pro. Both of these systems are powered by M2, which delivers a faster CPU, GPU, and neural engine along with higher memory bandwidth and new capabilities like Pro Res acceleration. Apple unveiled new innovations and accessibility such as door detection and live captions. Apple also announced Apple Pay Later, which gives customers more flexibility to make purchases with their devices. For the next generation of CarPlay, Apple is improving the driving experience with deeper integration into vehicle hardware, allowing drivers to control their music, change the temperature and monitor their fuel levels. For Apple Watch, Apple now get FDA approval for a new feature that will let users with irregular heart rhythms track the time they spend in Afib.
Service & Software: Apple's services revenue rose to $19.6 billion in the Q3, with a 12% increase YoY. Currently, iOS economy supports more than 2.2 million jobs in the US. In 2.5 years since launch, Apple TV+ has earned 250 wins and over 1,100 award nominations and counting. Last month, Apple announced the introduction of passkey, a next-generation credential that's intended to replace passwords. A passkey can't be phished nor can it be stolen by hackers in a data breach because the information is stored in customers' devices alone.
Q: There's lots of macro worries impacting consumer demand. Are you seeing any implications from recession or inflation fears to your end demand?
Tim Cook: We do believe we saw macroeconomic headwinds that impacted our business. One of those is the FX（foreign currency）, that was over 300bp on YoY growth rates. When look at the product categories, on iPhone, there was no obvious evidence of macroeconomic impact besides FX. Mac and iPad were so gated by supply that we didn't have enough product to meet the demand. And Wearables, Home, and Accessories, we did see some impact there that we would attribute to a macroeconomic environment. When look at Services, there were some Services that were impacted, like the digital advertising. So it's a mixed bag in terms of what we believe that we saw.
Q: There could be some pressure next year as iPhone upgrade rates slow. Can you walk us through the factors you believe are driving iPhone continued strength?
Tim Cook: Firstly, the product and the innovation within the product are driving it. Secondly, the size of the installed base has been growing significantly. In this quarter, there is a record for switchers with strong double-digit growth. We continue to execute across some significant geographies where there's a low penetration of iPhone. Some of those were called out in the opening remarks between Indonesia, Vietnam and India, where iPhone tends to be the engine for those markets for Apple products. So we're really looking at all these things from the installed base to the number of switchers to the geographic distribution.
Thirdly, the most important thing for us is to maintain an incredible customer satisfaction and loyalty from the customers. It's currently at 98% for the latest iPhones. Additionally, 5G has been an accelerant. Around the world, 5G penetration is still low. So I think there are reasons to be optimistic.
Q: In the services area, would there be an appetite for Apple to accelerate the growth of the Services business by looking at external opportunities to acquire?
Tim Cook: We always look and we ask ourselves if it's strategic on acquisition we never buy just to buy or buy only for revenue purposes. But we would buy something that is strategic for us. To date, we have concentrated on smaller IP and people acquisitions. But I wouldn't rule anything out for the future, and obviously, we are constantly surveilling the market.
Q: Apple's privacy policies have reshaped the mobile ad market. Can you give us a sense of how you see Apple's role as an ad network and perhaps helping developers over time?
Tim Cook: Apple views privacy as a fundamental human right. So Apple tries to do with all of features on privacy is put the decision back at the user where we believe it belongs to whether they want to share their data or not. Those are behind application tracking transparency and a number of other features. Apple is trying to empower the users to own their data and make their own choices. In terms of us selling ads, we have a search ad business across the App Store that we believe represents a great way for discovery on small and large developers. So we play a role in that.
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This article is a script from the AAPL Q3 2022 Earnings call. In order to facilitate reading, we have made appropriate cuts and revisions.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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杰曼 : AAPL increase in gross margin is unable to offset higher increase in operating expenses.... net profit margin drop significantly. that may mean AAPL is facing cost control problem. Forecast AAPL may show limited or no growth for both MoM and YoY for coming Sep 2022 report... current price is high, dead cat bounce... DYODD
我好懒 : I like apple, although the firm is super large and no longer considered a high growth stock, especially without any product catalyst, but I still like
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steady Pom pipi :
Milk The Cow : I guess if it was me, I will just hold $Apple (AAPL.US)$ for the current price as market is kinda being unreasonable (may go higher![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
) & sell if it reached my overvalued target price for $Apple (AAPL.US)$ ![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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calm Mink_3072 steady Pom pipi : Shgddcfghgghbhgg
72865355 : 123
Deep Value : I will add and lower price is better.
EternalBlue88 : Apple has something that other brands do not have. The ecosystems and alls. The shares price will be still going up all the way. Not saying that others will not go, but generally apple outlook will be better.
cola1010 : My thought is for $Apple (AAPL.US)$ investment well suited for those investors that prefer a moderate or higher risk tolerance to the higher volatility and long term holding time, yet still confident in Apple products for its reliable product and services.
HereForTheTrades : Apple is a long term hold for me. But I believe we may retest lower stock prices. The 12% growth in software and services is good to see.
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