Apple Reports Record Fourth-Quarter Results, Sales Soar 99% Year-on-Year in China

Witawat (Ed) Wijaranakula, Ph.D.
Mon Nov 2, 2015

Apple [NASDAQ:AAPL] shares have been on the rise, closing at $121.18 a share on Monday, up 5.79% since last Tuesday when the company reported revenues and earnings that beat Wall Street’s expectations, setting new unit records and increasing global market share for both iPhone and Mac. Apple CEO Tim Cook said, “We are heading into the holidays with our strongest product lineup yet, including iPhone 6s and iPhone 6s Plus, Apple Watch with an expanded lineup of cases and bands, the new iPad Pro and the all-new Apple TV which begins shipping this week.”

In the fiscal fourth-quarter ended September 2015, Apple reported total revenues of $51.5 billion, up 22.3% year-over-year and net profits of $11.1 billion, or EPS of $1.96, up 38% year-over-year. Wall Street was expecting earnings of $1.88 a share on revenues of $51.04 billion. International sales accounted for 64% of the quarter’s revenue. Sales in Greater China, China plus Hong Kong and Taiwan, grew 98.95% year-over-year to $12.52 billion, or 24.3% of the quarter’s revenue. Apple has 25 stores in Greater China and plans to open another 15 stores by the middle of next year.

In the press release, Luca Maestri, Apple’s CFO, said the company returned $17 billion to its investors during the quarter through share repurchases and dividends. Apple paid about $3 billion in cash dividends in the fourth-quarter and repurchased a total of 131,775,000 shares during the three months ended September 26 at an average price of $106.24 a share, according to the Form 10-K report.

Apple sold a total of 48.05 million iPhones last quarter, up 22% from the same period a year ago, despite that the new iPhone 6s and iPhone 6s Plus were only sold for a small portion of the quarter since their launch date was September 25. Analysts had estimated that Apple would sell 48.5 million iPhones in the quarter. 

Piper Jaffray analyst Gene Munster said in a research note that Apple could ship between 74-76 million iPhone units during its fiscal 2016 first-quarter, which encompasses the busy holiday shopping season in the U.S., Australia, Canada, Europe and many other regions. His estimate was based on Apple’s revenue guidance of between $75.5 billion and $77.5 billion in the first-quarter, which is a little lighter than expectations of $77.33 billion

A total of 9.88 million iPads were sold last quarter, down 20% year-over-year. Analysts were expecting iPad sales of 10.2 million units. iPad sales have been in a steady decline and are being offset by iPhone sales. Apple will start shipping the new iPad Pro on November 11 with shipments to be between 2.5-3 million units in the fiscal first-quarter 2016, according to Digitimes Research. The iPad Pro will be available at $800 for 32GB of onboard storage, $950 for 128GB of onboard storage, or $1080 for 128GB and LTE. The Apple Pencil will be available for $100, and the Smart keyboard will cost $160.

The company sold 5.71 million Macs in the fourth quarter, up 4% from a year ago, beating analysts’ expectations of 5.6 million units. Revenues from "other products", which includes iPods and Apple Watches, grew 60.8% from the previous year to $3.05 billion. According AppleInsider, Apple Watch sales could top $1.7 billion in the five months since its launch on April 24. The revenues from “other products” is expected to grow again during the first-quarter, with the debut of the new fourth-generation Apple TV, featuring a higher starting price of $149.

From our technical viewpoint, AAPL is about to break out the short-term descending wedge chart pattern and the 200-day moving average. Earlier this year, the stock made an attempt for a breakout of the long-term ascending wedge chart pattern, but was unable to break out the head resistance at around the $132 a share level. The stock price has been very volatile since early July, as concerns about Apple’s business in China were raised. 

Sell-side analysts based their thesis on the argument that Apple iPhone sales in China could have been at risk as China’s consumer sentiment was to be dragged down along with the turmoil in the China’s financial markets. Millions of small investors who bet on China’s stock markets were losing real money and could have shied away from expensive items, such as iPhones. This thesis has since been proven to be incorrect.

We expect in the near-term that Apple shares will break out and retest the $132 level. Apple will announce its fiscal first-quarter earnings report in January 2016. Analysts are expecting earnings of $3.26 a share on revenues of $77.33 billion. According to the Financial Times, the consensus forecast amongst 54 polled investment analysts covering Apple gave the company an Outperform rating with a price target of $150 a share.

Disclosure: Long Position in AAPL.

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