Apple (AAPL) reported fiscal first-quarter results ahead of our expectations led by the iPhone segment. The firm did not provide guidance the last three quarters and once more refrained from offering specific financial expectations due to uncertainty regarding COVID-19. Apple’s iPhone revenue grew 17% year over year to a quarterly record $65.6 billion, thanks to the new 5G iPhone 12 family. Although we anticipate strong double-digit iPhone growth in 2021, we think growth rates will moderate in the coming years. We are raising our fair value estimate for narrow-moat Apple to $98 per share from $85 as we incorporate a stronger near-term outlook due to the current 5G iPhone cycle and ongoing work- and learning-from-home dynamics bolstering Mac and iPad segments. Nonetheless, we think shares are currently overvalued, as we think recent growth trends could be unsustainable past 2021.
First-quarter revenue was up 21% year over year thanks to growth in iPhone (17%), iPad (41%), Mac (21%), services (24%), and wearables, home, and accessories (30%). Apple’s active installed base of iPhones is now over 1 billion, while its overall installed base of active devices surpassed 1.65 billion during the quarter. On the services front, Apple now enjoys over 620 million paid subscribers to its various services, up 140 million from a year ago. Greater China sales were up 57% year over year, which we attribute primarily to the new 5G iPhone, though management was adamant their iPad and Mac units also fared well in the region. Gross margin of 39.8% was up 160 basis points sequentially due to a higher mix of services and strong leverage from higher sales.
Management anticipates year-over-year growth for the March quarter, though the services business faces a difficult year-over-year comparison. Meanwhile, we expect the Mac and iPad segments to begin decelerating in a few quarters, following a stretch of robust growth due to COVID-19-related working- and learning-from-home.
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