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Apple Achieves Record Q1 Results; Raising FVE to $130

While we're upping Apple's fair value, the recent stretch of double-digit revenue growth will be difficult to maintain

Narrow-moat Apple AAPL reported stellar fiscal first-quarter results that came in substantially ahead of our estimates despite supply chain constraints and the ongoing chip shortage. Demand for the firm's latest iPhone 13 and MacBook Pro drove record iPhone and Mac revenue for the December quarter. We remain positive on Apple's ability to extract sales from its installed base via new products and services. While we are raising our fair value estimate to $130 per share from $124 to account for the stronger results, we think the recent stretch of double-digit revenue growth will be difficult to maintain as COVID-19-related Mac and iPad demand subsides.

First-quarter sales of $124 billion were up 11% year over year thanks to growth in iPhone (9%), Mac (25%), services (24%), and wearables, home, and accessories (13%). Apple’s iPhone sales grew 9% year over year to $71.6 billion. Greater China sales were up 21% year over year, and we believe Apple has gained mobile market share due to Huawei being blacklisted. We were surprised by the magnitude of Mac sales growth, which we attribute to the launch of the Apple M1-powered MacBook Pro. Gross margins of 43.8% were up 160 basis points sequentially due to leverage from higher product volume and a more favorable mix, partially offset by higher supply chain-related costs. On the services front, we’re impressed that Apple now enjoys over 785 million paid subscribers (up from 745 million last quarter).

Management expects Apple to achieve solid year-over-year growth in the March quarter, though not at the 11% pace earned latest quarter. Concerning supply constraints, management still anticipates some challenges, particularly in the iPad segment, albeit not to the degree of the December quarter. Given Apple’s clout in the consumer electronics industry, we suspect its ability to deal with supply disruptions is better than smaller peers, though supply is likely to remain pressured for at least a few more quarters, in our view.

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