'Safe port in the storm:' Why investors rewarded Apple but fled its Big Tech peers after earnings
- Apple's performance during earnings this week got a drastically different reaction from investors than other Big Tech companies.
- Apple shares were up about 7% Friday morning after it reported earnings Thursday.
- Microsoft and Alphabet had their worst days of the year Wednesday. Meta plunged 24% Thursday, and Amazon was down about 10% Friday morning.
- Apple now looks more stable than its peers, analysts say.
Apple's earnings received a drastically different reaction from investors than its Big Tech peers Amazon, Google, Microsoft and Facebook.
Shares of Apple were up about 7% Friday morning, the day after Apple reported earnings that showed 8% annual sales growth and despite misses on estimates for iPhone and services revenue.
Apple looks like a "relatively safe port in the storm," as a note Friday from Credit Suisse analyst Shannon Cross says.
But investors fled from other Big Tech stocks this week. Microsoft and Alphabet had their worst days of the year on Wednesday. Meta had its second-worst day on Thursday, plunging 24% to prices it hasn't traded at since 2016. And Amazon was down about 10% Friday morning after reporting earnings Thursday.
The reasons varied. Meta struggled with shrinking free cash flow as it continued its metaverse spending spree. Alphabet said ad sales were slowing as YouTube reported its first-ever revenue decline. And Microsoft was pressured by weak guidance and cloud revenue that missed expectations. Amazon missed revenue estimates and signaled a weak holiday quarter and narrowing profits.
But Apple now looks a lot more stable than its peers, especially as fears of a recession start weighing on ad sales and potential holiday spending. It's largely because Apple relies on hardware and services that people are still buying.
Mac revenue was up 25% year over year, for example. And while iPhone revenue missed estimates, it still rose 9.67% year over year. Services also popped 4.98% year over year, despite missing analyst estimates.
And Apple managed this while the larger phone and PC industry saw big declines. Worldwide smartphone shipments declined 9% during the third quarter, while Apple's shipments increased by 8%, despite its higher-priced devices, according to an estimate from research firm Canalys this week.
"Demand for premium devices remains intact," wrote Cowen's Krish Sankar in a note Friday.
In short, Apple's business remains strong, and demand for its products remains high around the world, even in emerging markets, bucking downward trends for global smartphone sales from other brands.
"Following Apple's F4Q22 results, it remains our top pick and, we believe, will likely remain a relative safe haven for many as the macroenvironment remains highly uncertain and choppy," Cross, of Credit Suisse, said. Cross added that Apple's results showed the company continues to grow in every region it sells in, despite recent price increases and weakening consumer sentiment.
Apple's quasi-guidance also was largely in line with expectations, versus companies such as Amazon that suggested a weaker holiday quarter.
Apple CFO Luca Maestri said total year-over-year revenue would grow in December but slower than the 8.1% growth during the September quarter.
But the stat still showed many analysts that Apple would continue its sales growth streak that's been in effect since the start of the pandemic. Keep in mind, next quarter's growth will have to be off a massive $124 billion base of sales from last year's December quarter.
However, the way that Apple now gives guidance through data points leaves a lot of room for interpretation, and some analysts believe that the current quarter could be worse than the market is pricing in. At least one even thinks Apple's data point suggests a down quarter.
"Apple is essentially saying revenues are going to be down next quarter," Bernstein's Toni Sacconaghi said on CNBC's "Squawk Box" on Friday, pointing out that Apple's December quarter has an extra week this year.
Sacconaghi said some of Apple's Big Tech peers also seemed to have issues controlling costs, whereas Apple remains fairly lean and profitable.
While Apple CEO Tim Cook told analysts that the company was seeing the effects of inflation on its costs, particularly in logistics, it also has managed the chip supply shortage well and said Thursday that it had no silicon shortages during the quarter.
Apple isn't immune to the advertising slowdown hitting Meta and Alphabet, though Cook said Thursday that ads are a very small part of Apple's services business.
Add it all up, and it's possible to see why some analysts consider Apple to be resistant to a recession.
"Overall, our viewpoint remains consistent that Apple remains recession resilient given its products, services and wearables businesses," wrote Piper Sandler's Harsh Kumar.
— CNBC's Michael Bloom contributed to this report.