Apple Inc. (AAPL) reported earnings after the bell on Tuesday, and at least gauging by Wall Street’s early after-market reaction, AAPL did well. Apple stock registered 3% gains shortly after the earnings release.
But that can turn in a minute’s time once Wall Street has time to digest all the important numbers. In fact, AAPL’s postmarket gains were already trimmed to flat as of this writing.
Let’s take a look at what we learned in fiscal Q4 Apple earnings, and what could impact investors’ decision to buy AAPL stock moving forward.
A Quick Look at Apple Earnings
Apple Inc. grew revenue 22.3% in its fiscal fourth quarter to $51.5 billion and posted earnings of $1.96 per share. Those figures were better than expectations, by $380 million and 8 cents, respectively.
On the flip side, AAPL sold 48.04 million iPhones and 9.88 million iPads during the same quarter — both of which were slightly below expectations. Furthermore, the midpoint for revenue of $76.5 billion for Apple earnings guidance in the first quarter was about $600 million shy of the consensus.
Therefore, Apple stock has some tailwinds and headwinds from the quarterly report. So as usual, the big question is how Wall Street will translate these mixed numbers to the stock.
My two cents: AAPL shares will see little movement from these numbers, because ultimately Apple earnings were pretty much in line with expectations across the board. There wasn’t enough to make Wall Street cheer, but not enough to spark widespread panic either.
2 Positive Takeaways
With that said, there were a few things I liked about the quarter that don’t immediately stick out.
The first is that revenue in China grew 99% year-over-year to $12.5 billion. This year’s iPhone 6s and 6s Plus launch included greater China, whereas it did not last year. Thus, it is no shock that revenue in Greater China was substantially higher.
Still, $12.5 billion in fourth-quarter revenue now has greater China accounting for almost 25% of Apple earnings. That’s impressive and important given the slowed growth of Americas and Europe, which account for a combined 62% of revenue but grew just 10% and 2%, respectively, in the fourth quarter.
Last but not least, the average selling price for iPhones shot way higher during this iPhone 6s launch quarter.
During the fourth quarter of 2014, the iPhone’s average selling price was almost $603. That price jumped to almost $660 in the third quarter of this year. However, in the fourth quarter, AAPL’s average selling price topped $670. This shows that Apple Inc. continues to get more and more from newer models of the iPhone, thereby keeping gross margins intact as the need for more flash memory rises, which increases costs.
What Now for Apple Stock?
Apple earnings were about what you’d expect. There were some things that we could consider good and bad, but at the end of the day AAPL still dominates the world’s smartphone market by revenue and gave investors no reason to worry about the company’s immediate future.
Furthermore, AAPL’s guidance suggests that management expects continued revenue growth, although at a much slower, near break-even pace. While the days of double digit growth for AAPL may be long gone, the stock remains very cheap at just nine times next year’s expected earnings minus cash. All things considered, Apple earnings did nothing to change my outlook for the company, and I’d still buy AAPL stock.
As of this writing, Brian Nichols was long AAPL.
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