Apple FQ1 20 – Big battery.

Battery life drives the earnings

• iPhone had a very good bounce off the lows of FQ1 19 driven by a recovery in China but a less than enthusiastic reception by the market and its valuation increase my inclination to take profits.
• FQ1 20 revenues / EPS were $91.82bn / $4.99 comfortably ahead of consensus at $88.41bn / $4.54.
• The story of the night was obviously the iPhone which beat sales expectations by $4.58bn (8.9%) driven largely, I think, by the huge leap in battery life that the iPhone 11 affords which enticed users to make the upgrade.
• The new camera functionality is good but does not really distance itself much from the Android crowd, leaving battery life as the stand-out feature of the new device.
• Wearables also did well coming in slightly ahead of forecasts with revenues of $10.0bn ($9.9bn consensus) as Apple Watch and iPods continued to be extremely popular.
• It has taken a long time and I have been pretty sceptical, but Apple has finally gotten the watch to a place where it offers a level functionality that makes it more than a solution looking for a problem.
• This solution is predominantly wellness, and with sensor technology rapidly improving to be able to reliably measure other vital signs, the outlook remains pretty bright.
• Although services missed expectations slightly (perhaps due to Disney +), it grew strongly underlining competent execution of the current strategy.
• The iPhone has allowed Apple to build a large and engaged user base from which it is increasing its monetisation through the sale of peripherals and services.
• Hence, I think that the current iPhone strength will wane giving a steady outlook after a quarter or two leaving wearables and services to make all the running.
• This is a good strategy but these two are still too small to take over the mantle of high growth meaning that the real outlook will be slow and steady.
• There is nothing wrong with this, it is just a question of what the market is expecting and what the valuation demands.
• Apple’s PER ratio has increased substantially over the last few years meaning that it is no longer the cheap stock that it was.
• This makes it less resilient to market shocks and highlights that there are other companies on similar ratios that are exhibiting higher growth.
• It is here I would be looking for upside and still think that the timing is right to continue taking profits on Apple shares.