No Disputing Apple iPhone Hegemony But Shares Not Cheap

However, management’s revenue guidance (at the midpoint) fell short of our expectations, implying a more tepid holiday quarter for the smartphone titan. Further cause for concern came from CFO Luca Maestri who noted that beginning next quarter, Apple will no longer be providing unit data for iPhones, iPads, or Macs, though revenue for each segment will still be disclosed. We are disappointed in the decision, as it obscures the mechanics for the future growth trajectory of the iPhone, which we note has become increasingly reliant on ASP-fueled growth in lieu of rising units.

Shares fell 7% during after-hours and are approaching our unchanged fair value estimate of $200 per share. We recommend prospective investors wait for a more attractive margin of safety for this narrow-moat behemoth.

Fourth-quarter revenue rose 20% year over year to $62.9 billion, led by the iPhone unit. Thanks to 10 days’ worth of sales of the latest iPhone XS and XS Max (starting at $999 and $1049, respectively) at the back-end of the quarter, iPhone sales rose 29% year-over-year to $37.2 billion. We note the 2017 flagship iPhone X did not contribute to Apple’s top line until the first quarter of fiscal 2018, thus distorting the comparisons of iPhone product sales.

Apple’s iPhone ASPs rose 28% year over year to $793, while units were effectively flat. First-quarter sales are expected to be in the range of $89 billion and $93 billion, with the midpoint implying 3% year-over-year growth. Maestri cited $2 billion in foreign exchange headwinds hindering the firm’s outlook. We foresee Apple reaching the high-end of this range, with an estimated $64 billion in iPhone revenue driven by 4% ASP growth, thanks to a favorable mix skewed to the XS/XS Max and LCD-variant XR.

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