Apple (AAPL) Delivers Blowout Q3 Earnings but Shares Fall on Supply Chain Constraints, Analysts Still Raise PTs

July 28, 2021 7:13 AM EDT
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Shares of Apple (NASDAQ: AAPL) are down 1.1% in pre-open despite the Cupertino-based tech titan delivering another blowout performance for its fiscal third quarter.

Apple made a profit of $1.30 per share on revenue of $81.41 billion versus $1.01 per share on $73.3 billion the analysts were calling ahead of the print. The outperformance was led by iPhone sales that exploded by nearly 50% to $39.57 billion (vs $34.01 billion). Gross margin came in at 43.3% vs 41.9% the Street expected.

“This quarter, our teams built on a period of unmatched innovation by sharing powerful new products with our users, at a time when using technology to connect people everywhere has never been more important,” said Tim Cook, Apple’s CEO.

“We’re continuing to press forward in our work to infuse everything we make with the values that define us — by inspiring a new generation of developers to learn to code, moving closer to our 2030 environment goal, and engaging in the urgent work of building a more equitable future.”

Other segments performed as follows:

Services revenue: $17.48 billion vs. $16.33 billion expected

Other Products revenue: $8.76 billion vs. $7.80 billion expected

Mac revenue: $8.24 billion vs. $8.07 billion expected

iPad revenue: $7.37 billion vs. $7.15 billion expected

Besides iPhones, both Services and Other Products recorded extremely strong growth - 33% and 40%, respectively. Moreover, the company now has 700 million paid subscribers, up 150 million year-over-year.

The company has yet again failed to provide an outlook but CFO Luca Maestri said the company is projecting double-digit, year-over-year growth in the current quarter. However, the September quarter sales guidance marks a deceleration from the June quarter.

It is also likely that investors didn’t like Maestri’s comment that AAPL expects growth below 36% due to lower growth in its services business and supply constraints for iPhones and iPads.

CEO Cook also added that supply chain difficulties will affect the company’s iPhone and iPad sales in the current quarter.

Numerous Street analysts used the record-breaking June quarter to raise their price target on Apple. Morgan Stanley Katy Huberty hiked the PT to $168.00 per share from $166.00, citing a better FY22 setup.

“As we wrote in our earnings preview, sustainability of revenue growth remains the key investor debate,and we walk away from F3Q earnings with even more confidence that Apple will grow in the December quarter and in FY22. Demand continues to exceed even the most bullish of expectations, with F3Q revenue 11% ahead of consensus and above even the most bullish whisper ($80B) we heard ahead of the print. This demand strength is underpinned by strong growth across all regions and products/services as well as a recent acceleration in installed base growth and services engagement,” Huberty said in a note.

“As a result of stronger than expected demand,especially for iPhone,and a tight supply chain, Apple will exit the September quarter with backlog. And because Apple enjoys industry leading customer loyalty rates, we don't view demand as perishable and Apple is therefore set-up for stronger December and FY22 growth. This improved set-up makes us more constructive on AAPLshares near-term and we are buyers on any near-term weakness,” she added.

Similarly, Oppenheimer analyst Martin Yang hiked the AAPL PT to $165.00 per share from $160.00 as sales momentum across hardware categories continues to impress.

“The "super cycle" of iPhone continues as more users switch (from Android) and upgrade (from older iPhones). We continue to believe Apple's in-house chip, the breadth and synergy across Apple devices, and the temporary lack of major feature innovation across consumer hardware set the company up for a period of accelerating share gains across product categories. The share gain and subsequent boost to active installed base positions the company well for further margin expansion from more sustainable growth in service revenues,” Yang wrote in a report on AAPL.

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