Apple’s Mac and iPad Sales Remain Bolstered in Q4

Apple AAPL reported fiscal fourth-quarter results ahead of our expectations led by Mac and iPad segments. The firm did not provide guidance the last two quarters and again refrained from offering specific guidance due to uncertainty regarding COVID-19. CEO Tim Cook expects iPhone revenue to grow in the December quarter despite the new iPhone 12 being launched a couple of weeks later in the quarter, though he did not specify the magnitude of growth. Meanwhile, all other products and services are expected to grow in the double digits.

We are raising our fair value estimate for narrow-moat Apple to $85 per share from $71 as we incorporate a stronger near-term outlook for the Mac and iPad segments due to ongoing work- and learning-from-home dynamics. Nonetheless, we think shares are currently overvalued, as we think recent growth trends could be unsustainable as we enter 2021.

Fourth-quarter revenue was up 1% year over year thanks to growth in iPad (46%), Mac (29%), services (16%), and wearables, home, and accessories (21%). Management noted the iPad and Mac segments remained supply constrained, which bodes well for these business lines in the December quarter. Apple’s iPhone sales were understandably down 21% year over year due to the iPhone 12 delay. Apple now has over 585 million paid subscribers to its various services, up 135 million from a year ago, and the firm expects 600 million subs by Dec 2020. Although Greater China was the region most impacted by the absence of the new iPhones for the quarter (total revenue down 29% year over year), non-iPhone sales grew double digits. Gross margin of 38.2% was up 20 basis points sequentially due to a higher mix of services.

Management was optimistic revenue from Greater China would grow in the first quarter, particularly as 5G is more mature in the region. We anticipate iPhone revenue for fiscal 2021 will be up in the low teens, though the late launch may shift some sales from the December quarter to the March quarter.

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