Wall Street was expecting to hear about a blowout fiscal first quarter from Apple Inc. (NASDAQ:AAPL) when the company reported earnings after the bell Tuesday.
Apple delivered in a big way — iPhone sales continued to be the main driver of Apple earnings, and an all-around positive report had AAPL climbing more than 4% in after-hours trading.
However, the euphoria might be a good signal for new money to stay away.
Apple Earnings: The Numbers
Shipments came to a staggering 74.5 million, which obliterated the consensus forecast of about 66 million. That makes for fun stats like this one: On the Apple earnings call, CEO Tim Cook said during Q1, AAPL logged 34,000 iPhone sales every hour.
On the Apple earnings call, CEO Tim Cook noted that during the quarter the company sold 34,000 iPhones every hour.
So far this earnings season, other mega tech operators such as Microsoft Corporation (NASDAQ:MSFT) and International Business Machines Corp (NYSE:IBM) have stalled, making Apple earnings the shining exception.
In the latest quarter, Apple posted a 30% increase in revenues to $74.6 billion on earnings of $3.06 per share. Both figures cleared the Street’s bars for revenues of $67.5 billion and $2.61 per share.
But it was the iPhone sales that were the most remarkable.
Even the optimistic analysts were looking for shipments of 73 million or so, meaning that Apple’s figure managed to trump even the most fanboy-esque of experts.
It looks like the new Swift language for iOS development has been a big hit and has created more loyalty and excitement with developers. And no doubt, the larger form factor was an important key for sales — and also likely a major reason for deceleration for rivals including Samsung (OTCMKTS:SSNLF).
That iPhone sales figure also was nurtured by higher prices on Apple’s products — the average selling price of an AAPL iPhone has escalated from $637 to $687 over the past year.
Why Investors Should Be Cautious With AAPL Stock Going Forward
There was one important piece of bad news in the Apple earnings report. Namely, iPad sales came in at only 21.4 million, which not only missed estimates for 22 million units, but marks a considerable year-over-year slowdown. Last year, AAPL sold about 26 million.
While it’s far from a kiss of death, investors certainly shouldn’t ignore it — without something to reinvigorate iPad sales, Apple will need something to pick up the slack, and it will be difficult for iPhones to continue propelling growth amid an ever-maturing smartphone market. According to IDC, the growth rate is forecast to drop from 19.3% in 2014 to 11.5% in 2018.
Apple needs to diversify away from its iPhone franchise, which currently represents almost 70% of overall revenues. Apple Pay appears to be a promising product, and the iWatch — now expected out in April — could step up. But it still will take time for either to make a meaningful contribution to revenues.
Also consider the fact that AAPL stock rose nearly 10% in the past quarter before tonight’s report, meaning many investors were already betting on a big quarter.
When you add those things up, it might be reasonable to expect that Apple stock could find itself stuck in neutral once the earnings euphoria has passed.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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