Shares of the world’s most valuable company and the iconic iPhone manufacturer Apple Inc. (Nasdaq: AAPL) rose 5.50% yesterday to close at 201.50 after the company reported exceptional third-quarter results that blew away analysts’ estimates and slow down concerns. The top line was driven by impressive sales of costly iPhone X, with subscriptions from Apple Music, Apple Store, and iCloud services lending strong support to overall performance.
Notably, the market cap of the company has risen to about $990 billion. Invariably all analysts and market participants expect the trillion-dollar market cap to be breached soon. Therefore, based on the details provided below, we expect the stock to rally further in the days to come.
The Cupertino, California company reported third-quarter 2018 revenue of $53.265 billion, an increase of ~$8 billion from $45.41 billion reported in the similar quarter last year. Net income for the quarter ended June 2018 increased to $11.52 billion or $2.34 per share, from $8.72 billion or $1.67 per share in the year-ago period.
Analysts surveyed by FactSet had been forecasting earnings of $2.16 per share on revenue of $52.3 billion.
During the third-quarter, Apple sold 41.30 million iPhones, missing analysts’ expectation of 41.80 million units. However, Apple realized an average iPhone selling price of $724 in the March-June quarter, far higher than the $693 average price expected by analysts.
Usually, Apple realizes its lowest average selling price in the spring quarter. However, it was not the case this time. The company realized a meaningful increase in average selling prices, from the $606 reported in the same period last year. Luca Maestri, the CFO of Apple, stated that the customers were purchasing costly models. He also revealed that the $999 iPhone X was the best seller in the recent quarter. As smartphone buying has almost flattened, Apple has extended its range of iPhones with both costly and cheaper versions.
Services revenue is turning out to be an important component of Apple’s business. During the quarter, Apple posted services revenue of $9.50 billion, an increase from $7.30 billion in the similar quarter last year. Analysts were expecting services revenue of $9.20 billion.
The company’s services segment revenue is increasing due to a sharp rise in subscriptions to third-party apps such as Netflix. Apple gets a share when clients sign up for Netflix streaming services from within the Apple ecosystem. Apple revealed that it is realizing growth of about 100% on a y-o-y basis in video-streaming subscription services. The company’s CEO Tim Cook also stated that Apple Music has more than 50 million users (paid and unpaid subscribers) at the end of the third quarter.
Another important statistic watched by analysts is Apple’s performance in China. The company saw a rebound in 2017 and the trend is continuing. Apple posted its fourth-quarter of double-digit growth in mainland China. Revenues from China increased to $9.60 billion in 3Q18, from $8 billion in the previous quarter.
The company also stated that it anticipates revenues of between $60 and $62 billion in the final quarter of fiscal 2018. The 4Q18 revenue guidance was greater than $59.50 billion expected by the FactSet analysts.
The windfall gains from tax overhaul has enabled Apple to repurchase its common stock worth $20 billion. So far this year, Apple has invested $43 billion in stock repurchases. The company’s board of directors has announced a quarterly cash dividend of $0.73 per share, payable on August 16, 2018.
Following the impressive results, almost all equity research firms have issued a hold or buy rating for the stock:
- Morgan Stanley – Overweight
- RBC – Outperform
- Deutsche Bank – Hold
- Citigroup – Buy
- Goldman Sachs – Neutral
- Bank of America Merrill Lynch – Buy
- UBS – Buy
- Raymond James – Market Perform
- Piper Jaffray – Overweight
Analysts also expect Apple to reach a market capitalization of $1 trillion soon.
Morgan Stanley stated “A clean beat on the path to $1 trillion.” Likewise, RBC stated “Hit snooze for 90 Days. Path to trillion intact.” Therefore strong earnings, impressive service revenue growth and higher average price realization for iPhone are expected to keep the stock bullish in the short-term.
Technically, the stock is miles above its 50-day moving average, which has been acting as solid support for the past two months. The stochastic RSI is in the bullish zone, while the MACD indicator is in the positive region. Therefore, we are expecting the stock to move up in the short-term.
We may trade the uptrend by investing in a binary call option, which is valid for a period of one week. The option may be bought only if the stock is trading near $200 in the equity market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
