Why Apple stock rose after rare earnings miss

Supply challenges and macroeconomic headwinds weighed on Apple’s performance last quarter. Apple reported lower earnings than Wall Street expected. However, Apple’s stock price rose in Friday trading as analysts and investors were impressed with stable iPhone demand and growth in services revenue. Shares of Apple rose $3.68 (+2.44%) to close at $154.50 on Friday.

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John Ballard for The Motley Fool:

The quarter was more challenging for Apple than last year. Revenue fell 5% year over year to $117.2 billion, with earnings per share coming in at $1.88. This missed estimates of $121.88 billion and $1.94, respectively. However, excluding the negative impact of foreign currency changes, revenue would have been up over the year-ago quarter.

[I]t was the growth in the installed base of devices, now over 2 billion, that points to a bright future… iPhone revenue was flat year over year adjusted for currency, but the long wait times indicate that revenue could have been higher if not for the supply shortages.

Despite the headwinds, Apple has a nice synergy of products and services coming together. Services revenue surpassed $20 billion in the quarter — nearly a fifth of Apple’s business. The growth here has had a positive impact on Apple’s profitability, with gross margin climbing well over 40% over the past three years.

MacDailyNews Take: It’s the gross margin:

Company gross margin was 43%, up 70 basis points from last quarter due to leverage and favorable mix, partially offset by foreign exchange. Products gross margin was 37%, up 240 basis points sequentially. Services gross margin was 70.8%, up 30 basis points sequentially. Apple expects march quarter (Q223) gross margin to be between 43.5% and 44.5%.

Exceedingly strong margins like this give Apple room to maneuver through any recession that may arrive due to continued inflation and interest rate hikes to combat them. This margin headroom that Apple’s rivals simply do not have bodes well for Apple taking even more market share from the Mac, iPad, and iPhone knockoff peddlers of the world.

Hence, the stock price is rising, despite a momentary blip due to the CCP’s quixotic, now-abandoned “Zero COVID” fiascos that damaged Apple’s supply out of China in the holiday quarter.

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    1. Evidently, You don’t remember the early 2000’s when Microsoft stock kept going up for several years immediately after continually missing consecutive earnings reports. And Apple’s aways went down even after consecutive gains in their reports.

    2. Also, Apple routinely suffers stock price dips after reporting record earnings and record profits. Seems that Wall Street runs by a different sort of logic than the rest of the world.

  1. My guess is that even though revenue was down it was down for many other companies as well. Plus the guidance (subtle) for this quarter was good. If I understood them correctly, they said that production problems have mostly been fixed and they expect that iPhone orders lost last quarter will be added to this quarter. Guidance of future revenue usually is a much stronger support for stock price than the negative hit of missed revenue.

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