Apple to Drive Double-Digit Growth in 2020

Apple AAPL reported strong fiscal first-quarter results, thanks to healthy sales of iPhones, wearables, and services during the holiday period, while providing investors with a second-quarter forecast that was ahead of CapIQ consensus estimates and our prior expectations. Overall, we see no signs of Apple adoption slowing down, as the firm has 1.5 billion active devices within its ecosystem, up over 100 million in the past year. We are raising our fair value estimate to $240 per share from $220 for narrow-moat Apple, as we incorporate superior near-term prospects. That said, current levels appear lofty, as we don’t believe the strong near-term results mean that a 5G super cycle is on the horizon. We’ve witnessed cycles before where strong iPhone adoption has been met by a predictable lull thereafter as customers pause from buying the latest devices, and we also surmise the torrid double-digit growth in services and wearables will be difficult to sustain.

First-quarter sales were $91.8 billion, up 9% year over year despite $1 billion of currency headwinds (per management) and well ahead of the company’s guidance of $85.5 billion-$89.5 billion. IPhone revenue was the bright spot, as Apple earned $56.0 billion, up 8% year over year. Wearables growth remained stellar with sales up 37% year over year (44% excluding home/accessories products). Meanwhile, service revenue grew 17% year over year. Apple now has 480 million paid subscribers, 120 million more than a year ago, and the firm expects 600 million subs by December 2020. Apple’s total sales rose (year over year) in its three largest regions--12% in the Americas, 14% in Europe and 3% in Greater China. Gross margin of 38.4% rose 40 basis points sequentially and came in at the high end of guidance.

For the March quarter, Apple expects revenue in the range of $63.0 billion-$67.0 billion which would be up 12% year over year at the midpoint. The range is wider than usual due to additional uncertainty about the coronavirus.

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