To The Moon

Yesterday after the bell, $Apple(AAPL)$ released its fiscal year 2023 quarterly report (corresponding to the fourth quarter of 2022 on a natural day). Revenue declined for the first time since 2019, and after the announcement, Apple's stock price took a dive after hours, eventually closing down 3.24%.

Is Apple's earnings really that bad?

Looking at Q1, Apple's results remain strong if we remove effects from currency exchange rates and production outages.

Media reports made the market think that Apple's earnings were very bad: "Apple's revenue fell badly", "iPhones are not selling" and so on.

In terms of expectations, Apple's Q1 revenue and net income were both below the consensus estimates of Bloomberg analysts, and indeed underperformed.

But in fact, Apple's negative growth came from force majeure factors, such as the exchange rate headwinds brought about by the appreciation of the U.S. dollar, and the longer production shutdown brought about by Foxconn's pandemic control.

The exchange rate changes brought an 8 percentage point loss to Apple's revenue. In other words, under the fixed exchange rate, Apple's revenue in Q1 was positive.

The Foxconn shutdown was more of an unpredictable factor. As a result, popular iPhone models failed to be delivered to consumers in a timely manner.

However, China's pandemic control has become history and will no longer exist. At the same time, the momentum of the dollar's appreciation is fading as the Fed's interest rate hike comes to a close. These two negative factors are weakening for Apple.

So don't be scared by Apple's negative Q1 growth; its fundamentals are still strong. In particular, Apple's growth has been very impressive even with the global macroeconomic headwinds and the sharp decline in consumer electronics last year.

Revenue by businesses and regions

Apple's Q1 revenue was $117.15 billion, down 5.5% year-over-year, missing analysts' expectations of $112.14 billion.

Products revenue was $96.39 billion, down 7.7 percent year-over-year.

Services revenue was $20.77 billion, up 6.4 percent year-over-year.

Services revenue has been Apple's ballast. As Apple's device ownership grows, the number of paying subscribers is expected to climb. By the end of 2022, Apple will have 2 billion active devices, twice as many as seven years ago. The number of paid subscribers reached 935 million.

If not for the strengthening of the dollar, Apple's services revenue growth would have remained in the 2-digit range.

Performance of products

iPhone revenue was $65.78 billion, down 8.2% year-over-year.

Mac revenue was $7.7 billion, down a whopping 28.7 percent year-over-year

iPad revenue was $9.4 billion, a 29.6% jump year-over-year.

Revenue from wearable devices was $13.48 billion, down 8.3 percent year-over-year.

Consumer products such as cell phones and computers saw sales plunge last year due to the macroeconomic and pandemic relaxing effects. However, after removing the impact of exchange rates, iPhone Q1 revenue remained flat with the same period last year.

Mac revenue plunge was affected by both the exchange rate and macroeconomic environment, and the time difference new product launch. The new Mac version was launched in late January this year, while the same period last year was driven by the M1 MacBook.

The impact of new products on revenue was immediate. iPad was launched in October last year, just in time for the peak consumer season, and in the first quarter of FY22, iPad also encountered a supply shortage. Both factors resulted in a big jump in iPad revenue, but management expects a 2-digit decline in iPad revenue in the next quarter.

By region, Q1 revenue declined 4.3% in the Americas, 7% in Europe, 7.3% in China, 5% in Japan, and 2.8% in the rest of the world.

Guidance

For the next quarter, Apple did not give specific guidance, but sees a similar revenue growth scenario to Q1. This means revenue could fall by about 5%. On the positive side, management expects iPhone growth to improve next quarter, services revenue to grow year-over-year, and a 2-digit decline in Mac and iPad.

Apple expects gross margin for the next quarter to be in the range of 43.5%-44.5%, compared to 43.7% a year ago.

How can Apple maintain its high share price after revenue growth slows down?

Current Bloomberg analyst revenue forecast for fiscal year 2023 is $402.2 billion, a year-over-year increase of only 2%.

Combined with Apple's revenue growth rate in previous years, single-digit growth is not an exception.

After losing its growth, what will Apple rely on to pull up its stock price in the future? With a P/E of 25.6x, how much more upside does Apple have?

$Apple(AAPL)$ 's share price may be able to survive by buying back and writing off shares to boost the value per share.