When you are the biggest company in the S&P 500 by market capitalization like Apple (AAPL 174.85, +6.74, +4.0%) is, you tend to receive a lot of attention. At the same time, you tend to face high expectations to justify that market capitalization. In reporting its fiscal fourth quarter results and issuing fiscal first quarter guidance after Thursday's close, Apple lived up to the expectations and justified its market capitalization.
By and large, Apple's report went down easy as the company checked off just about every box in terms of satisfying investors' and analysts' expectations.
- Fourth quarter revenue of $52.58 billion was up 12.2% year-over-year and ahead of expectations
- Its gross margin rate of 37.9% was at the high end of the company's guidance range of 37.5%-38.0%
- Earnings per diluted share of $2.07 were up 24% year-over-year and comfortably above analysts' average expectation
- iPhone unit sales hit 46.677 million, exceeding expectations
- The Services business registered a 34% year-over-year increase in revenue of $8.5 billion
- Every geographic region enjoyed sequential revenue growth
- Revenue increased double-digits year-over-year for every Apple product, with the exception of the iPhone (+2%)
There are plenty of superlatives to be used when discussing Apple's results. It's not easy facing the high expectations the company does and then living up to them.
The real point of comfort, though, is that Apple did not disappoint with its guidance for the fiscal first quarter, which will feature the mass production of its signature product, the iPhone X, and the arrival of the holiday selling season that should prove to be a good one for Apple.
Apple's guidance calls for revenue to be between $84 billion and $87 billion and its gross margin to be between 38.0% and 38.5%. The midpoint of the revenue guidance range is slightly ahead of analysts' average (and high) expectations. In the same period a year ago, Apple's revenue was $78.4 billion and its gross margin rate was 38.5%.
The ability to hit the high end of its revenue guidance range, or even exceed it, will likely depend in large part on the availability of the iPhone X. The hurdle for Apple, it seems, isn't so much demand as it is supply. Can its supply chain deliver the goods in a timely and large bulk fashion? That is the question.
CEO Tim Cook said on the conference call that the ramp for iPhone X is going well, but that Apple can't predict a supply/demand balance timeframe at this point.
The latter uncertainty notwithstanding, investors have responded favorably to Apple's outlook. Shares of AAPL are up 4% in pre-market action and are trading at an all-time high.
At the current price, AAPL trades at approximately 15.5x estimated FY18 earnings, which isn't expensive when also taking into account the company's massive $269 billion in cash, cash equivalents, and long-term marketable securities on its balance sheet that affords it ample space to buy back stock before any benefit of a lower repatriation tax rate, which is being considered in Congress.
What happens with the tax reform plan remains to be seen, but what is happening at Apple is a sight to be seen. The company is doing an impressive job of meeting investors' high expectations by delivering products and services that continue to meet consumers' high expectations.