- Apple gave a sudden warning to investors on Wednesday afternoon, lowering its first-quarter revenue guidance.
- "Biggest miss in years," Jefferies says in a note to investors.
- Oppenheimer says Apple's announcement "raises more questions than answers."
Major Wall Street analysts slashed price targets on Apple after the iPhone marker gave a sudden warning to investors, lowering its first-quarter revenue guidance on factors including China's weakening economy.
Jefferies and Macquarie each threw in the towel and downgraded the stock to a neutral rating from buy.
"Biggest miss in years," Jefferies said in a note to investors. "Apple's business in China appears to be rapidly deteriorating."
"The bottom line is that we are late (obviously), but we can no longer recommend Apple," Macquarie said.
Oppenheimer said Apple's announcement "raises more questions than answers."
"We remain solidly on the sideline as we continue to believe investors are not pricing in longer-term risks," Oppenheimer said.
Apple stock closed Thursday trading down 10 percent at $142.19 a share.
Here's what major Wall Street analysts were saying about Apple:
While no one is likely to be surprised by Apple's December quarter miss, the magnitude of the fall-off in iPhones (14% in revenue terms) is likely worse than most expected. We are lowering our FY 19 revenue growth estimate to -2% (from 7%) and our FY 19 EPS estimates to $12.09 (from $13.48), and our price target to $160.
Lowering ests and PO to reflect China, iPhone weakness We lower our estimates for iPhone units/revenues materially. Our FY19/20/21 EPS estimates move to $12.20/$14.07/$16.44 from $13.86/$15.26/$16.98 and our new PO of $195 is based on approximately (unchanged) 15x our C2019 EPS estimate of $12.6, given the slowdown in China/iPhones.
A weakening economy combined with improved smartphone product quality (i.e. higher quality components and assembly leading to longer useful lives), smartphone ASPs that are up 22% over the past two years (per IDC) and a lack of carrier subsidies contributed to weaker China iPhone sales in the December quarter. Our analysis of shipment data suggests that for the broader China smartphone market, replacement cycles have lengthened materially in the past two years (Exhibit 1), and even more so for Apple (Exhibit 2) ... The combination of an even weaker China and continued replacement cycle lengthening in developed markets that are digesting lower subsidies and cheaper battery upgrades lead us to take FY19 iPhone units down by another 20M, to 180.25M or -17% Y/Y.
The guidance revision follows an already disappointing F1Q19 revenue guide issued in early November. While most other headwinds (namely FX, tougher comps based on product launch timing, and supply chain constraints) contemplated by management already in the guide tracked in line with expectation, F1Q19 preliminary results tracked substantially lower than guidance led by greater economic weakness in EMs and fewer phone upgrades in DMs.
Apple's guidance cut confirms our negative view on demand in China that we have been flagging since late September ... We are reducing our FY19 revenue estimate by 6% to $253bn and FY19 EPS By ~10% to $11.66. We are also reducing our 12-month price target to $140 based on a 12x P/E multiple (ex. cash ~10x) as we see the potential for further downside to FY19 numbers depending on the trajectory of Chinese demand in early 2019.
Nokia saw rapid expansion of replacement rates in late 2007 that was well beyond what any linear forecast would have implied. Beyond China, we don't see strong evidence of a consumer slowdown heading into 2019 but we just flag to investors that we believe Apple's replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone.
We downgrade to Hold as AAPL's business in China appears to be rapidly deteriorating with the revised outlook for iPhone materially worse than our below-consensus ests. We still think Apple can build a massive Services business over time. But AAPL hasn't missed its guide in years, so the extent of this miss suggests it is navigating uncharted waters. We move to the sidelines and wait for clarity as uncertainty grows around the hardware business.
CQ4 neg-pre on weak China demand; services an important silver lining AAPL announced preliminary FQ1:19 (Mar) results w/revenue ~$84B versus prior $89-93B guidance due almost wholly to weaker than expected emerging market demand, particularly in China. Despite the ~8% revenue miss, GM of 38% was still at low-end of guide; other line item results imply EPS of ~$4.20 vs Street ~$4.70. The release implies China revenue declined ~25-30% Y/Y, declines last seen during the iPhone 6S cycle due at that time to very tough iPhone 6 comps. Services notably strong w/revenue $10.8B, or ~$500MM ABOVE our model. While we are cutting AAPL estimates and price target, to us this speaks more about why it is too early to get more +ve on semis.
Apple cited the majority of its sales miss from China which last quarter represented 18% of the company's total sales which we estimate is now closer to 10-12%. While our financial model was below consensus we again lower our model and target price to $170 from $200 based on this news. In this report we show our scenario analysis which can help answer How Low Can Apple Stock Go? We do not expect much positive news until after earnings slated for late January and even then the focus will be how low can sales go (-5% y/y in December and we project –2% y/y in March) and while bulls will cite stock buyback and low valuation trading at 11x F12M PE we don't expect any rally in the shares in the near term until consensus get materially reset lower and trade wars get resolved.
The bottom line is that we are late (obviously), but we can no longer recommend AAPL. Fears about iPhone have been confirmed, uncertainty about the severity and duration of iPhone troubles will linger, and the other shoe is about to drop on Services growth, particularly for its highest margin drivers.
What we want to learn more about on the FY1Q19 earnings call is: 1) causes and longterm implications (including brand damage) of the precipitous China slowdown during December; 2) how much friction AAPL's aggressive pricing strategy is causing; and, 3) the impact of trade politics on the business results of AAPL and other global US companies.
Last night Apple delivered a bombshell negative preannouncement that will be a defining moment for Cook & Co. for years to come. While the Street had been anticipating softness in the December quarter and around March guidance given a slew of negative iPhone XS/XR data points coming out of the Asia supply chain over the past few months, the magnitude of the top-line miss (~8%) with China demand the culprit was jaw dropping in our opinion and will heavily weigh on shares accordingly. Although the company had some soft quarters over the past 20 years that missed Street expectations, in the modern iPhone era last night was clearly Apple's darkest day in our opinion and represents a challenging growth period ahead for the company (and its investors).
We are lowering our estimates and target price following the negative preannouncement issued by Apple for the December quarter. While most metrics are largely unchanged, new revenue guidance is dramatically lower (~10%) than prior expectations based on iPhones. We have been cautious surrounding the newly launched iPhone's ability to drive an upgrade cycle, particularly in China, and December quarter results are worse than we would have expected. We remain Market Perform on the shares and look for stability in the iPhone business before becoming positive.
Apple lowered revenue guidance for the December quarter (Q1'19) to ~$84B vs the prior outlook of $89-93B and consensus at $91B. The guide down was largely attributed to weaker than anticipated iPhone sales in Greater China due to macroeconomic factors, including trade tensions with the U.S. ... We have reduced our FY19E & '20E iPhone units, while raising estimates for non-iPhone revenue, including services, Mac and wearables. The end result is FY19 & '20 estimated revenue comes down by 6% and 4%, respectively, in our model. Additionally, we are lowering our price target to $187 to reflect both lowered EPS estimates and a slightly reduced PT multiple.
We believe the press release and guidance miss raises more questions than answers. 1) What is wrong in China? 2) Where does the iPhone go from here? 3) Is it clear yet, that Apple has a gross margin problem? The calming affect and what drives earnings growth in our model is capital returns. We remain solidly on the sideline as we continue to believe investors are not pricing in longer-term risks. One caveat for the bull thesis: March 2016 quarter was the last miss....on emerging market weakness.
Apple's greater-than-expected weakness in emerging markets, most notably driven by weakness in Greater China. Apple notes that over 100% of Apple's y/y revenue decline was generated by weakness in Greater China across iPhone, iPad, and Mac (leaving us / investors to question the impact of the US-China trade situation). ... While weaker-than-expected iPhone results have been widely anticipated since November (we think street expectations were still in the low-70M unit range; we now estimate a mid-60M iPhone ship estimate), our industry checks leave us to believe that demand weakness, coupled with channel inventory burn-off, could persist for a few quarters.
Weak iPhone demand largely in China drove a large F1Q sales miss. Despite Apple's production cuts through F1Q, we assume excess channel inventory will weigh on Apple's shipments into mid-2019. The bright spots are that weak iPhone demand seems partially cyclical, other units are faring well, and the installed base is rising. We lower our estimates and our target to $175, our (aging) rating remains Neutral.
Despite our lowered iPhone and overall Apple estimates post our survey work indicating weak demand for new iPhone products, Apple preannounced Q1/F'19 results well below our lowered estimates. Management cited weaker-than-anticipated iPhone revenue, primarily in China, accounted for all of the roughly $7B shortfall with management lowering guidance from $91B at the midpoint to $84B. Despite slowing iPhone sales, we still anticipate Apple will continue to grow its install base and believe the company's ecosystem will contribute to ongoing growth, particularly for higher-margin Services and Other Products. In fact, management indicated revenue outside of iPhones grew 19% year-over-year, and this growth was consistent with our estimates.
While disappointing to be sure, non-iPhone sales, driven by services and wearables, grew a strong 19% YOY. China uncertainty could remain an overhang, though driven by the strength of the broader eco-system, continued strong free cash flow and services strength, we believe shares should prove attractive on the latest weakness for long-term investors.
Apple preannounced a significant revenue miss for the December quarter, their first miss in recent memory, driven entirely by lower than expected iPhone sales. The company indicated sales were particularly weak in China, which represented the majority of the revenue shortfall; however, emerging markets sales were also significantly weaker than expected. While currency, component constraints, and timing of the new products launches represented headwinds in the quarter, management indicated these factors were all broadly consistent with expectations.