Why Apple Bulls Aren’t Sweating the Latest Earnings Disappointment

Apple disappointed investors with its earnings report, but the company’s long-term prospects remain strong. Here’s why Apple bulls aren’t sweating the latest earnings disappointment.

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Introduction

It’s been a tough few weeks for Apple (AAPL) shareholders.

The stock is down more than 10% since the company reported fiscal first-quarter results that disappointed investors on Jan. 29.

Still, there are plenty of reasons for optimism about Apple’s prospects in the year ahead. And many analysts and investors believe the recent sell-off presents an attractive buying opportunity.

Here’s a look at three key reasons why Apple bulls aren’t sweating the latest earnings disappointment.

The History of Apple’s Stock

Since going public in 1980, Apple Inc. (AAPL) has been one of the most successful companies in terms of stock performance. The company has seen its shares rise more than 38,000% since its IPO, dwarfing the returns of the overall stock market and making it one of the most valuable companies in the world.

However, Apple’s stock has not always been on such a strong trajectory. In fact, there have been several periods where the stock has struggled, including during the dot-com crash of the early 2000s and the financial crisis of 2008-2009.

Nonetheless, Apple’s long-term track record is still quite impressive, and its shareholders have enjoyed significant returns over the years.

The Latest Earnings Disappointment

Apple shares tumbled after the tech giant posted disappointing earnings for its fiscal fourth quarter. But some analysts say the dip presents a buying opportunity for long-term investors.

Apple posted earnings of $3.03 per share on revenue of $62.9 billion for the quarter ended September 30, missing analyst expectations of $3.14 per share on revenue of $63.7 billion. The company also announced that it would no longer provide guidance going forward due to “uncertainty around the world.”

The earnings miss sent Apple shares down nearly 5% in after-hours trading on Thursday, but some analysts say the sell-off is an overreaction and presents a buying opportunity for long-term investors.

“We believe any weakness should be viewed as a buying opportunity ahead of what we expect to be another strong iPhone cycle,” Cowen & Co. analyst Karl Ackerman wrote in a note to clients on Thursday evening.

A number of other analysts echoed Ackerman’s sentiment, noting that Apple’s strong product lineup and growing Services business provide a cushion even if iPhone sales disappoint in the short-term.

“We believe Apple is firing on all cylinders,” UBS analyst Timothy Arcuri wrote in a note to clients on Friday morning. “And while we do not discount near-term headwinds from COVID-19 … we believe Apple is one of the better positioned companies in our coverage universe.”

Why Apple Bulls Aren’t Sweating

The Cupertino, Calif-based company posted fiscal first-quarter revenue and profit that missed analysts’ expectations Tuesday, as iPhone sales fell short of estimates. It was the second consecutive quarter that iPhone sales have come up short.

But investors don’t seem too worried. The stock was down about 2% in after-hours trading Tuesday, but earlier this month Apple shares hit an all-time high. So what’s driving the optimism?

1. Services are booming: Apple’s services business, which includes the App Store, iCloud,apple music apple pay generated $10.9 billion in revenue during the quarter, up 18% from a year ago. That business is now the size of a Fortune 100 company and is on pace to become Apple’s largest segment this year.

2. Wearables are on fire: The wearables category, which includes apple watch and AirPods, posted $10 billion in revenue during the quarter, up 54% from a year ago. That business is now bigger than 60% of all publicly traded companies in the United States, according to analysts at Goldman Sachs. And it’s still in its early innings with just 10% of eligible iPhone users owning apple watch

3. The installed base is huge and loyal: There are now 1.4 billion active iPhones around the world, up 100 million from a year ago. What’s more, iPhone users are incredibly loyal — about 95% of people who own an iPhone say they would buy another one, according to Goldman Sachs analyst Rod Hall. And 88% of current iPhone owners say they’re likely to buy an iPhone again when they upgrade their device, according to investment bank UBS.

Conclusion

To sum up, Apple bulls aren’t sweating the latest earnings disappointment because:

-The miss was small relative to the overall size of the company.
– services revenue continues to grow strongly, and
– there are several upcoming product launches that investors are optimistic about.

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