Apple Inc. (AAPL) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Apple Q1 Fiscal Year 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Tejas Gala, Director of Investor Relations and Corporate Finance. Please go ahead. Tejas Gala: Thank you. Good afternoon and thank you for joining us. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Luca Maestri. After that, we'll open the call to questions from analysts. Tim Cook: Thank you, Tejas. Good afternoon, everyone. Thanks for joining the call today. It's with great gratitude for the tireless and innovative work of every Apple team member worldwide that I share the results of a very strong quarter for Apple. We achieved an all-time revenue record of $111.4 billion. We saw strong double-digit growth across every product category, and we achieved all-time revenue records in each of our geographic segments. It is not far from many of our minds that this result caps off the most challenging year any of us can remember. And it is an understatement to say that the challenges it posed to Apple as a business paled in comparison to the challenge it posed to Apple as a community of individuals, to employees, to their families and to the communities we live in and love to call home. While these results show the central role that our products played in helping our users respond to these challenges, we are doubly aware that the work ahead of all of us to navigate the end of this pandemic, to restore normal life and prosperity in our neighborhoods and local economies and, to build back with a sense of justice is profound and urgent. We will speak to these needs and Apple's efforts throughout today's call, but I want to first offer the context of a detailed look at our results this quarter, including why we outperformed our expectations. Let's get started with hardware. We hit a new high watermark for our installed base of active devices, with growth accelerating as we passed 1.65 billion devices worldwide during the December quarter. iPhone grew by 17% year-over-year, driven by strong demand for the iPhone 12 family, and our active installed base of iPhones is now over 1 billion. The customer response to the new iPhone 12 models' unprecedented innovation from world-class cameras to the great and growing potential of 5G has been enthusiastic, even in light of the ongoing COVID-19 impact at retail locations. Luca Maestri: Thank you, Tim. Good afternoon, everyone. We started our fiscal 2021 with exceptional business and financial performance during the December quarter, as we set all-time records for revenue, operating income, net income, earnings per share and operating cash flow. We are thrilled with the way our teams continued to innovate and execute throughout this period of elevated uncertainty. Our revenue reached an all-time record of $111.4 billion, an increase of nearly $20 billion or 21% from a year ago. We grew strong double digits in each of our product categories, with all-time records for iPhone, Wearables, Home and Accessories and services as well as a December quarter record for Mac. We also achieved double-digit growth and new all-time records in each of our five geographic segments and in the vast majority of countries that we track. A - Tejas Gala: Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please? Operator: We'll go question from Katy Huberty with Morgan Stanley. Please go ahead. Katy Huberty: Congratulations on a really strong quarter. First question for Luca. The gross margin was particularly strong versus your outlook. Can you talk about whether you recognize the full impact of the weaker dollar in the December quarter, given your typical currency hedges? And then how are you thinking about the headwinds and tailwinds on gross margins as you go into the March quarter? And then I have a follow-up for Tim. Luca Maestri: Yes, Katy. So yes, the gross margin was strong, was better than we had anticipated at the beginning of the quarter. The reason for that was obviously, we had very strong leverage from higher sales. And the mix was strong, both the mix within products and the mix of services, and that was only partially offset by cost. As you know, we've launched many new products during the fall, and that always comes with new cost structures. So in total, it was very good. And from the FX standpoint, really, at the gross margin level, FX didn't play a role neither sequentially nor on a year-over-year basis for the December quarter, partially because of the hedges that you talked about but also because some currencies are still weaker against the dollar, they're still weaker than a year ago. Look specifically to emerging markets in Latin America, in Russia, in Turkey and so on. Clearly, if the dollar remains weak or continues to weaken, that can become a tailwind for us as we get into the March quarter. At current rates, we expect some level of benefit around 60 to 70 basis points for the March quarter. Katy Huberty: That's great. And Tim, one of the challenges with valuing Apple is just a limited visibility that investors have into the road map and any new categories that you might enter over time. Without, of course, commenting on any given opportunity, can you talk about the framework that you use internally to evaluate new markets that might be attractive and what you believe will determine your success as you look to enter new markets? Tim Cook: Thanks, Katy, for the question, and thanks for not asking me any specifics. The framework that we use is very much around we ask ourselves if this is a product that we would want to use ourselves or a service that we would want to use ourselves. And that's a pretty high bar. And we ask ourselves if it's a big enough market to be in unless it's an adjacency product, of which we're looking at it very much from a customer experience point of view. And so there's no set way that we're looking at it, no formula kind of thing. But we're taking into account all of those things, and the kind of things that we love to work on are those where there's a requirement for hardware, software and services to come together because we believe that the magic really occurs at that intersection. And so hopefully, that gives you a little bit of insight into how we look at it. And I think we have some good -- really good opportunities out there. And I think if you look at our current portfolio of products, we still have relatively a low share in a number of cases in very big markets. And so we feel like we have really good upside there, and we feel like we have really good upside in the Services area, too, that we've been working on for quite some time with four or five new services just coming online in the last year, year-plus, and so -- yes. Thank you. Operator: We'll hear next from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Luca, the iPhone growth exceeded your expectations despite a late launch. Can you maybe share on the unit side or the ASP side? You referred to very strong mix a couple of times on the call. And how does this change your view on the March quarter? And if you could share any color on if you're still supply constrained, and I have a follow-up for Tim. Luca Maestri: Yes. Yes, certainly, iPhone was one of the major factors why we exceeded our own internal expectations at the beginning of the quarter. We have a fantastic product lineup and we know that, and it's been fantastic to see the customer response for new models, particularly the Pro models, the Pro and the Pro Max. So, we've done very, very well both on units and on pricing because of the strong mix. And we've had some level of supply constraints as we went through the quarter, particularly on the Pro and the Pro Max. As you said correctly, we launched these products in the middle of the quarter, two models after four weeks, the other two models after seven weeks. And so obviously, we had a very steep ramp, which fortunately went very, very well. The products are doing very well all around the world. I think you've seen that our performance has been particularly strong in China, where we've seen phenomenal customer response that probably. There was also some level of pent-up demand for 5G iPhones, given that the market is moving very quickly to 5G. And so as we look ahead into the March quarter, we're very optimistic. We believe we're going to be able to be in supply-demand balance for all the models at some point during the quarter. And it's -- the product is doing very well all around the world. Wamsi Mohan: Great. And Tim, you mentioned about the strength of the installed base performance, which continues to grow very impressively at this scale. Can you maybe help us think through how the switcher versus upgrade activity has been tracking in recent quarters? I would love to get your thoughts on that. Tim Cook: Yes. Thanks for the question. If you look at this past quarter, which has -- we started selling two of the iPhones 4 weeks into the quarter and the other two, seven weeks into the quarter. And so I would caution that this is in the early going. But in looking at the iPhone 12 family, we saw both switchers and upgraders increase on a year-over-year basis. And in fact, we saw the largest number of upgraders that we've ever seen in a quarter. And so, we were very thrilled about that. Operator: We'll go ahead and take our next question from Shannon Cross with Cross Research. Shannon Cross: Tim, can you talk a bit about what you're seeing in China? Clearly, significant sequential growth, which I think has a lot to do with iPhone. But I'm curious, both from an iPhone as well as your other product categories, what you're seeing and how much back to normal you think the Chinese market is? And then I have a follow-up. Tim Cook: Yes. China was more than an iPhone story. iPhone did do very well there. And sort of like the world, if you look at both switchers and upgraders, we were up year-over-year, and China also had a record number of upgraders during the quarter, the most we've ever seen in a quarter. I think probably some portion of this was that people probably delayed purchasing in the previous quarter as rumors started appearing about an iPhone. Keep in mind that 5G in China is -- the network is well established. And the overwhelming majority of phones being sold are 5G phones. And so I think there was some level of anticipation for us delivering an iPhone with 5G. And so, iPhone did extremely well. However, the other products did as well. I mean, we could not have turned in a performance like we did with only iPhone. iPad did extremely well, far beyond the Company average. Mac was about the Company average. Wearables, Home and Accessories was above the Company average. And so if you really look at it, we did really well across the Board there. In terms of COVID, I think they're -- at least for last quarter, they were beat -- sort of beyond COVID, very much in the recovery stage. This quarter, there are different reports about some cases in some places and lockdowns occurring but we have not seen that in our business as yet. Of course, those cases are much smaller than the ones in other countries. Shannon Cross: Right. I guess the other thing I was curious about, with regard to the Services business, if we could dig a little bit more, I think this is one of the first times when Luca, you talked about Apple TV+, Arcade, Apple Pay, some of the smaller services actually kind of moving the needle. And then I was also curious, you had a number of stores closed at least later in the quarter, and that typically has impacted some of your AppleCare revenue and yet you outperformed. So, maybe if you could talk about a bit more about the drivers of the Services revenue? Luca Maestri: Yes. I mean, really, it's been strong across the Board. There are two businesses during COVID that have been impacted negatively, and then we talked about it in the past. One is AppleCare. Obviously, when the stores are closed, it's tougher, of course, for customers to have the interaction with us. And advertising, which is -- it's in line with the overall level of economic activity. What happened during the December quarter is that in-store traffic improved. And so AppleCare, we grew -- we didn't grow as much as company average but we grew in AppleCare, set an all-time record there in spite of the fact that, yes, we are running, particularly in December, we started closing a few stores, particularly here in the United States but also in Western Europe. But in total, we were able to support more customers than in past quarters. And we also saw a sequential acceleration in advertising and so that also helped the overall growth rate. Clearly, the strength was in digital services, in the App Store, in cloud services, in Music. Those were the services that really delivered very, very strong performance. It's something that we've seen happen during the COVID environment. Operator: We'll hear from Toni Sacconaghi with Bernstein. Toni Sacconaghi: I also have one for Luca and one for Tim. Luca, I was wondering if we could just probe a little bit more into iPhone. Maybe you can just -- you talked about a drawdown in channel inventory last quarter. Our iPhone channel inventory is sort of at normal levels now exiting Q1. And should we be thinking about above-seasonal iPhone growth, given that you're still not in supply-demand balance and you had fewer selling days in fiscal Q1? Should we be thinking about sort of above-seasonal iPhone growth looking into Q2? Luca Maestri: So on the December performance, as you know, Toni, this was a very different cycle because we launched at a different time than usual. And so, we had an initial part of the quarter where, obviously, we didn't have the new phones. And then as we launched the new phones, we also did the channel fill that typically happens, to a certain extent, in the September quarter. At the end of the quarter, the demand has been very strong. And so we've been constrained, as I said, on -- especially in the Pro models. At the end of December, we exited with a level of iPhone channel inventory, which was slightly below a year ago. So we -- and we still had some level of supply constraints, which we believe we're going to be able to solve during the March quarter. In terms of the sequential change, we talked about -- during the prepared remarks, we talked about total company average, and we said that we expect that sequential progression to be similar to the typical seasonality that you've seen in past years. Certainly, last year is not typical because of COVID. But if you go back, fiscal '17, '18, '19, that's our typical seasonal progression. And we mentioned a couple of product categories, Services and Wearables, where we're going to be having a slightly more difficult compare. And so I think you can draw your conclusions around the iPhone. Toni Sacconaghi: Okay. And then, Tim, I was wondering if you could just comment more broadly around growth for Apple and sources of growth. The Company this year is going to be well over $300 billion in revenue. Historically, you've issued acquisitions. And I'm wondering if you could comment whether you still feel confident that Apple has Apple organic growth opportunities and that you don't believe acquisitions are an important source of growth? And then I think perhaps most importantly, as you look out, let's say, over the next five years, what do you think is a realistic revenue growth rate for Apple going forward? Tim Cook: Yes. Toni, as you know, we give some color on the current quarter but not beyond that in terms of growth rates, so I'll punt that part of your question. But if you back up and look at the sort of the ingredients that we have at this point, we have the strongest hardware portfolio that we've ever had. And we have a great product pipeline for the future, both in products and in Services. We have an installed base that has hit new highs that we just talked about earlier in our opening comments. And we're still attracting a fair number of switchers and, of course, upgraders. We just set an all-time Services record, and we have that installed base to compound that, and particularly with the added services that we've had over the last year or so, that as they grow and mature, will contribute even more to the Services revenue stream. And on the Wearables side, we've brought this thing from zero to a Fortune 120 company, which was no small feat. But I still think that we're in the early stages of those products. If you look at our share in some of the other products, whether you look in iPhone or Mac or iPad, you find that the share numbers leave a fair amount of headroom for market share expansion. And this is particularly the case in some of the emerging markets, where we're proud of how we've done but there's a lot more headroom in those markets. Like if you take India as an example, we doubled our business last quarter compared to the year ago quarter. But our absolute level of business there is still quite low relative to the size of the opportunity. And you can kind of take that and go around the world and find other markets that are like that as well. And of course, the other thing from a market point of view is we're -- we've been on a multiyear effort in the enterprise and have gained quite a bit of traction there. You've heard some of the things in Luca's comments today and we comment some on it each quarter. We're very optimistic about what we can do in that space. And then, of course, we've got new things that we're not going to talk about that we think will contribute to the Company as well, just like other new things have contributed nicely to the Company in the past. So, we see lots of opportunity. Thank you for the question. Operator: We'll hear from Amit Daryanani with Evercore ISI. Please go ahead. Amit Daryanani: I have two questions as well. I guess, starting with you, Luca, I just wanted to go back to the gross margin discussion, and we really haven't seen gross margins at this level, high 39%, I think, since 2016. Could you maybe step back and talk, what has enabled the shift higher? What are the key drivers to get you there? And is commodity tailwind or in-sourcing of some components really a big part of this? So just love to understand the durability of the gross margin at these levels. And what are the big drivers that got us here? Luca Maestri: Well, I mean, of course, when you grow the way we've grown this quarter, 21%, it's -- obviously, we have a certain level of fixed cost in our product structures, right? And so a high level of sales helps margin expansion without a doubt, and so that has been probably the biggest factor, to be honest. And then as I was saying earlier, we've had, across the Board, in Services, in every product category, we've had a very strong mix of products, right? We were talking about the iPhone, the Pro and the Pro Max, and that's been pretty much the case in every product category. So the mix has also been very good. The commodity environment is fairly benign. And the one thing that has not affected us this time around is the FX that it's true, it has not been a tailwind yet for the reasons that I was explaining to Katy, but at the same time, it has not been a negative. And the reality is that FX for us has been a negative over the last five or six years, almost every quarter. And so that has changed. And that obviously makes a difference. Amit Daryanani: And then Tim and when I look at the growth rates on Mac and iPads, they've been in the 20% to 40% range for the last three quarters, and I suspect some of this is just folks contending with the pandemic. But love to understand, when you look at these growth rates, how much of this do you think is replacement cycle-driven folks upgrading with at home versus new customers and new folks that are coming into the Apple ecosystem? And do you see, I guess, what sort of growth rates do you think is more durable or predictable as we go forward over here? Tim Cook: If you look at the switcher or the switchers, if you look at the new to Mac and new to iPad, these numbers are still about, at a worldwide level, about half of the purchases that are coming from people that are new. And so the installed base is still expanding with new customers in it. And so that's true on both iPad and Mac. If you look at Mac, the M1, I think, gives us a new growth trajectory that we haven't had in the past. Certainly, if Q1 is a good proxy, there's lots of excitement about M1-based Macs. As you know, we're partly through the transition. We've got more -- a lot more to do there. We're early days of a two-year transition, but we're excited about what we see so far. The iPad, as we went out with the iPad Air, and we now have the best iPad lineup we've ever had, and it's clear that some people are using these as laptop replacements. Others are using them as complementary to their desktop. But the level of growth there has been phenomenal. You look at it at 41%. And yes, part of it is work from home and part of it is just learning. But I think I wouldn't underestimate how much of it is the product itself on -- in both the case of iPad and Mac. And of course, our share in the Mac is quite low. In the -- for the total personal computer market. And so there's lots of headroom there. Operator: We'll go ahead and take our next question from Samik Chatterjee with JP Morgan. Samik Chatterjee: Congrats on the record quarter from my side as well. I guess I wanted to start off with iPhone sales. I think in -- general impression we have is China and North America have more robust 5G infrastructure. I just wanted to see kind of what are you seeing in terms of customer engagement or velocity of sales for iPhone in Europe, where I think the general impression is that service providers haven't rolled out robust 5G services. Is that something that's impacting customer interest in the latest lineup in the region? And I have a follow-up. Tim Cook: If you look at the 5G rollout in Europe, it's true that Europe is not in the place of -- certainly nowhere close to where China is and nowhere close to the U.S. either. But there are other regions that 5G is -- that has very good coverage, like Korea is an example. And so the the world, I would describe it right now, is more of a patchwork more to do that we haven't had in quilt. There are places that there's really excellent coverage. There are places where -- within a country that is very good but not from a nationwide point of view. And then there are places that really haven't gotten started yet. Latin America is more closer to the last one. There's lots of opportunity ahead of us there. And I think Europe is where there are 5G implementations there. I think most of that growth is probably in front of us there as well. Samik Chatterjee: Got it. As a follow-up, if I can just ask you, I think you mentioned the momentum you're seeing for the Apple One bundle, which I think has been a couple of months now since you launched it. Any metrics to share in terms of what you're seeing for conversion rate of customers or even insights into which services are turning in that bundle, are turning out to be the anchor Services that's driving adoption of that bundle? Tim Cook: It's really too early to answer some of those questions. As you know, we just got started into the quarter in Q1 so we have less than a quarter on this right now. What we wanted to accomplish with it, we're clearly accomplishing, which is making our Services very easy to subscribe to. Our customers clearly told us that they wanted to subscribe to several services or, in some cases, all of our services. And so, we've made that very simple, and it's clear from the early going that it's working but we've just gotten started on it. Operator: We'll hear from Krish Sankar with Cowen. Krish Sankar: Congrats on the very strong results. My first question is for Tim. Tim, I want to talk a little bit about your search and advertising business. How do you think of the long-term growth opportunities in advertising? How do you think it -- how long can it grow at two times to three times the App Store growth rate? And also, are there any applications where your fundamental search technology, AI could be adapted for other parts of the Services business, that's the first question. And then I have a quick follow-up for Luca after that. Tim Cook: The search advertising business is going well. It's a -- there's lots of intent from search. And we do it in a very private kind of manner, observing great privacy policies and so forth. And I think people see so forth. And I think people see that and are willing to try it out. And we have been growing nicely in that area. It's a part of the advertising area that Luca spoke of earlier. Krish Sankar: Got it, got it. And then a follow-up for Luca. When you look at your Services segment in the March quarter, in China, you typically see a bump due to gaming downloads during Chinese New Year. So should see a similar trend this time around? But do you think with a pandemic, and people think for me at home, that kind of seasonal bump might not happen in China for gaming downloads? Luca Maestri: Yes. I mean, I think I was mentioning it during the prepared remarks. We -- clearly, in China, the March quarter is typically the strongest quarter for our Services business and for the App Store because of Chinese New Year, as you mentioned. And last year, what we saw was an increased level of activity because after Chinese New Year, the whole country went into lockdown for several weeks. And so that propensity for playing games continued for several weeks, more than a typical cycle. So, we expect to have a great quarter in China, but at the same time, you need to keep in mind that the compare is going to of what happened a year ago. Operator: We'll go ahead and take our next question from Chris Caso with Raymond James. Please go ahead. Chris Caso: The first question is on iPhone ASPs and I know you don't disclose the numbers there, but I wonder if you could speak about it qualitatively. You spoke about the richer mix, but there were also some price differences as compared to a year ago. iPhone 12 came higher price point. The Pro established a new price point. Can you speak to how that the level of benefit that you saw there? And going forward, are you confident that you can continue to improve the next in iPhone going forward? Luca Maestri: So, as I said earlier, we grew iPhone revenue 17%. That growth came from both unit sales and ASPs because of the strong mix that I mentioned before. So, I think that answers your question for the December quarter. What we've seen so far, it's very early because we launched the new products only a few weeks ago. What we've seen so far is a very high level of interest for the Pro models, the Pro and the Pro Max. We worked very hard to ramp up our supply. We've had some supply constraints during the December quarter. We think we're going to be able to solve them during the March quarter. But so far, the mix has been very strong on iPhone. Chris Caso: Okay. As a follow-up question, if you could talk a bit to the benefit that you may have seen from some of the carrier actions? We've seen very aggressive trade-ins during the quarter. Did that provide a benefit, in your view, on units or mix or perhaps both? And what would be the level of permanence that you would see in some of those actions such that if those subsidies were removed, could that potentially be a headwind going forward? Tim Cook: I think, Chris, it's Tim. I think subsidies always help, that anything that reduces the price to the customer is good for the customer and obviously good for the carrier that's doing it and good for us as well. And so, it's a win across the board. I believe that, at least based on what I see right now is that there would be probably continuing to have quite a bit of competition in the market, if you're talking about the U.S. market for customers as the carriers work to get more customers to move to 5G. Outside of the U.S., the subsidies are not used in all geographies, and so it really varies greatly by country. Some of them are separate completely, the handset and the service. And in those areas, we don't have subsidies. Operator: We'll go ahead and hear from Jim Suva with Citigroup. James Suva: It's amazing how your company has pivoted and progressed through this uncertain time in society. A lot of the pushback we get on our view on Apple is that everyone around them or that they know developed countries has an iPhone or Apple product and the market is kind of being saturated some. But when I look at other countries like India, I believe statistically, you are materially below that in market share. So are you doing active efforts there? It seems like there's been some news reports of moving supply chain there. Or you recently opened up an Apple Store. How should we think about that? Because it just seems like you're really not full market share equally around the world. Tim Cook: Yes. There are several markets, as I alluded to before. India is one of those, where our share is quite low. It did improve from the year-ago quarter. Our business roughly doubled over that period of time. And so we feel very good about the trajectory. We are doing a number of things in the area. We put the online store there, for example, and last quarter was the first full quarter of the online store. And that has gotten a great reaction to it and has helped us achieve the results that we got to last quarter. We're also going in there with retail stores in the future. And so we look for that to be another great initiative and we continue to develop the channel as well. And so there's lots of things, not only in India but in several of the other markets that you might name where our share is lower than we would like. And I -- again, I would also say, even in the developed markets, when you look at our share, definitely, everybody doesn't have an iPhone, not even close. And so, we really don't have a significant share in any market. So, there's headroom left even in those developed markets where you might hear that. James Suva: Congratulations to your team and employees. Tim Cook: Thank you, Jim. Appreciate that. Tejas Gala: Thank you. A replay of today's call will be available for two weeks on Apple Podcast, as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are (888) 203-1112 or (719) 457-0820. Please enter confirmation code 1828830. These replays will be available by approximately 5:00 PM Pacific Time today. Members of the press with additional questions can contact Kristin Huguet at (408) 974-2414. Financial analysts can contact me with additional questions at (669) 227-2402. Thank you again for joining us. Operator: Once again, that does conclude today's conference. We do appreciate your participation.
UBS Stays Neutral on Apple as iPhone Demand Surge Seen as Temporary
UBS is holding its Neutral rating on Apple Inc. (NASDAQ:AAPL) with a $210 price target, noting that while recent iPhone sales data shows a strong start to the June quarter, the boost is likely short-lived and not indicative of a lasting trend.
According to supply chain insights and early sales estimates from Counterpoint, global iPhone sell-through for April and May is tracking in the mid-teens percentage growth year-over-year. UBS attributes this jump—similar to April’s 14% increase—to consumer concerns about potential iPhone price hikes driven by U.S. tariffs on Chinese and Southeast Asian imports, which may have pulled forward some demand.
iPhone sell-through is currently estimated to be around 4 million units higher than the same period last year. While that offers a temporary lift, UBS notes that these gains occurred during what are typically slower months for sales. With the June quarter typically averaging about 45 million iPhone units, the recent strength may not be sustainable.
Furthermore, the firm points to underwhelming announcements at Apple's WWDC and subdued purchase intent observed in its latest UBS Evidence Lab survey as reasons to expect a cooling in demand ahead. In UBS’s view, the market is unlikely to project this early-quarter momentum into future quarters without stronger product catalysts or demand drivers.
KeyBanc Sticks to Neutral View on Apple, Citing Solid iPhone Trends But Limited Upside
KeyBanc reiterated its Sector Weight rating on Apple (NASDAQ:AAPL), maintaining a neutral stance despite signs of continued hardware strength, particularly in iPhone sales.
According to May KFLD data cited by the firm, indexed spending fell 1% month-over-month—better than the typical three-year average decline of 2%—and remained up 22% year-over-year, though decelerating from April’s 38% growth. KeyBanc attributes the May performance to a demand pull-forward seen earlier in the spring, with spending levels elevated from a stronger starting point.
The firm believes current trends suggest resilience in Apple’s hardware segment, especially iPhones, and noted that carrier data on upgrade rates and new customer additions reinforces a stable demand environment. As a result, KeyBanc is holding its current estimates but considers them conservative.
Despite this, analysts don't see compelling valuation upside, citing Apple’s forward 2026 EV/EBITDA multiple of ~19.7x—slightly below its three-year average of ~21x—as still expensive in the context of the company’s expected growth.
Needham Downgrades Apple to Hold, Citing Growth Concerns and Valuation Pressures
Needham cut its rating on Apple (NASDAQ:AAPL) from Buy to Hold, flagging a mix of fundamental, competitive, and valuation headwinds that may limit upside in the near term.
The firm trimmed its earnings and revenue forecasts, citing slowing growth prospects and intensifying competition. Major tech rivals are targeting Apple’s lucrative platform fees, while advancements in generative AI could spur hardware innovations that threaten Apple’s device ecosystem.
Valuation was another sticking point. Apple is currently trading at over 26 times projected 2026 earnings—a level Needham considers elevated, especially without a clear catalyst to drive near-term acceleration.
The firm said a major iPhone upgrade cycle would be necessary to reignite momentum, but does not expect one within the next year. Analysts suggested a more attractive entry point would be in the $170 to $180 range. However, they also noted that if Apple were to aggressively develop a new advertising revenue stream, it could meaningfully boost both top- and bottom-line growth.
Apple Inc. (NASDAQ:AAPL) Faces Tariff Challenges but Maintains Strong Growth Prospects
- UBS maintains a "Buy" rating for Apple Inc. (NASDAQ:AAPL) despite a 20% decline in stock price, indicating confidence in long-term growth.
- Apple's potential tariff challenges could impact gross margins, yet its services business continues to grow, showcasing adaptability.
- The company's market capitalization stands at approximately $3 trillion, with a current stock price of $200.85, reflecting resilience amidst competition and market fluctuations.
Apple Inc. (NASDAQ:AAPL) is a leading technology company known for its innovative products, including the iPhone, iPad, and Mac computers. The company has built a strong ecosystem with approximately 2.3 billion Apple devices worldwide. Despite its success, Apple faces challenges, such as the recent decline in its stock price and increased competition from companies like Nvidia and Microsoft.
On June 1, 2025, UBS maintained its "Buy" rating for Apple, with the stock priced at $200.85. Despite a 20% decline in Apple's stock this year, UBS's decision to hold the current position suggests confidence in the company's long-term potential. Apple's market capitalization now stands at $3 trillion, trailing behind Nvidia and Microsoft, with the possibility of soon falling behind Amazon.
A significant factor contributing to Apple's stock decline is President Trump's plan to impose a 25% tariff on iPhones manufactured outside the United States. This tariff could severely impact Apple's gross margins, affecting its profitability. Despite this challenge, Apple's iPhone has been a key driver of its success, with no significant stumbles since its launch in 2007.
Apple's stock price currently stands at $200.85, reflecting a 0.45% increase with a change of $0.9. The stock has fluctuated between a low of $196.78 and a high of $201.94 today. Over the past year, AAPL has reached a high of $260.1 and a low of $169.21. The company's market capitalization is approximately $2.999 trillion, with a trading volume of 70.8 million shares on the NASDAQ.
Despite the recent decline, Apple's services business, particularly its App Store, continues to grow, fueled by the vast ecosystem of Apple devices. This growth highlights the company's ability to adapt and innovate, even in the face of challenges. As highlighted by Benzinga, Apple's stock performance may lag behind peers, but Wall Street remains optimistic about its future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Raymond James Cuts Apple Target to $230 on Tariff Risks, Still Sees Long-Term Upside
Raymond James lowered its price target on Apple (NASDAQ:AAPL) from $250 to $230 while maintaining an Outperform rating, citing growing concerns over tariff-related headwinds that could pressure earnings in the coming years.
The firm trimmed its 2025 and 2026 earnings forecasts, projecting that ongoing import tariffs could cut Apple’s EPS by 8% to 10% if fully applied. Although Apple has ramped up manufacturing outside of China—enough to meet roughly half of U.S. iPhone demand—the future tariff treatment of imports from India and Vietnam remains uncertain after a temporary 90-day exemption pause.
Raymond James now assumes a 15% blended tariff rate on all Apple imports, reflecting a cautious base-case scenario where Apple responds by raising U.S. prices, which could in turn dampen demand and compress earnings.
For the March 2025 quarter, the firm raised its estimates to $96.3 billion in revenue and $1.65 in EPS, up from $94.5 billion and $1.62, driven by strong iPhone 16e demand and consumer pull-forward ahead of potential tariff increases. However, the forecast for June was lowered slightly to reflect expected cost pressures, with EPS revised down from $1.50 to $1.44 and gross margins expected to decline by about 100 basis points.
Apple is expected to begin implementing price hikes in the September quarter to mitigate the impact, but overall, Raymond James reduced its 2025 EPS estimate from $7.31 to $7.15 and 2026 from $8.20 to $7.70.
Despite near-term volatility, the firm views any pullback as a buying opportunity, highlighting Apple’s dominant ecosystem, sustained double-digit growth in Services, and long-term potential from on-device AI capabilities.
