Gene Munster: ‘All signs suggest sunnier days will return for Apple’

For its fiscal Q123, Apple on Thursday posted quarterly revenue of $117.2 billion, down 5 percent year over year, and quarterly earnings per diluted share of $1.88. Deepwater Asset Management Managing Partner and longtime Apple analyst Gene Munster writes, “All signs suggest sunnier days will return for Apple.”

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Apple blamed “a difficult macroeconomic environment and significant supply constraints,” for the underperformance, but management hinted at better times to come during their conference call with analysts following the warning release.

Gene Munster for Deepwater Asset Management:

It’s rare that I write about Apple missing a quarter. For the twenty years I’ve been following the company, I now count three times results have come in below expectations. As I peeled back the layers of the results along with the company’s guidance, the big picture became more clear. Even though Apple’s business is being negatively impacted by the supply chain and the macro, the company is maintaining innovation excellence with its core products, optionality with potential new products (AR and auto) and most importantly a loyal, engaged and growing customer base. All signs suggest sunnier days will return for Apple.

Officially, Apple does not give guidance, but rather “directional insights” that are effectively guidance… The biggest takeaway from the guidance was that gross margin for March is expected to be between 43.5% and 44.5%, higher than the 43% just reported in December and the 39% average over the past four years. That’s especially surprising given revenue is declining. Typically when revenue is declining, margins are declining at a greater rate. CFO Luca Maestri attributed the margin outlook to seasonal leverage and a favorable product mix. I’ll add another likely factor that was not mentioned, Apple’s strength in negotiations with component suppliers. This dynamic has enabled the company to expand gross margins by around 500bps over the past year despite rising industry component costs. That is a competitive advantage that will yield benefits beyond the March quarter…

Apple’s active device installed base to now… 2 billion, up 8% y/y and doubling over the past seven years. The growth in the base today is coming from markets like India and Brazil, both Android stronghold markets that give Apple plenty of room to grow in the coming years.

Pulled through the active device installed base are paid subscriptions. Apple reported that they now have more than 935m paid subs signed up through the App Store. That number is up more than 150 million in the past year and is 4x greater than five years ago. For context, that 150m is about equal to the total number of Amazon Prime subscriptions.

MacDailyNews Take: In the past year alone, Apple grew paid subscriptions one Amazon Prime subscriber base.

Smart investors accumulate Apple shares, especially during dips.MacDailyNews, January 24, 2023

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1 Comment

  1. Thanks for your opinion, Gene. But were it only about dollars. The Apple of today compared to the Apple of 20 years ago – good job Tim Cook. There is ;iterally no question it was Jobs and Ive that made Apple tick. You, cook, have a reliable money making machine, but the fun, the wonder, the legitimate innovation – that is in the rearview. It is beyond apparent that Apple is now a company that considers pandering and at times it would honestly appear ADHD before utility across the board. Steve Jobs was famous in the Valley for pissing people off by eliminating redundancies, looking ahead, and frankly, understanding people. Modern Apple and Silicon Valley writ large have literally zero of that impetus or understanding. The point of technology (see Sir Tim Berners Lee and his team at NeXT) used to be to improve our lives. Now it is more than ever to keep us stuck in a cycle of perpetual expenditure and brand loyalty. The thread was lost nigh on 20 years ago and we are finally reaping the mediocre fruits.

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