To The Moon

After the bell on Thursday, Apple reported its FY22 quarterly report (as of Sept. 24), with revenue exceeding market expectations, but other figures were mixed.

• Q4 revenue was $90.15 billion, up 8.1% year-over-year, beating the Bloomberg consensus estimate of $88.64 billion.
• Q4 net income of $20.72 billion, up 1% year-over-year
• Gross margin was 42.3%, slightly higher than Bloomberg's estimate of 42.2%.

Data from Apple's earnings; compiled by Value investing

Segment businesses

• iPhone revenue of $42.63 billion, up 9.7% yoy, slightly below Bloomberg's estimate of $42.67 billion
• Mac revenue of $11.51 billion, a 25.4% jump yoy, well above Bloomberg's estimate of $9.25 billion.
• iPad revenue of $7.17 billion, down 13% yoy and significantly below Bloomberg's estimate of $7.81 billion.
• Wearable device revenue of $9.65 billion, up 9.8% yoy, greatly exceeding Bloomberg's estimate of $8.8 billion.
• Services revenue of 19.19 billion, up only 5% yoy, significantly lower than Bloomberg's estimate of 19.97 billion.

During the earnings call, management expected a significant slowdown in revenue for the next quarter, which once triggered market panic. In after-hours market, $Apple(AAPL)$ had fallen more than 5%, but closed slightly up 0.35%.

Segments Businesses Performance

In Q3 earnings season, Google, Microsoft, META, Amazon all missed estimates, the share price plunged. Apple's mixed results may be a not bad news compared to its counterpart, but still have many problems.

iPhone- hidden worries

Apple's core iPhone revenue, Q4 revenue of $42.63 billion, up 9.7% year-on-year. Although $0.4 billion lower than market expectations, but considering that global smartphone shipments fell 9% in the third quarter, this growth rate was acceptable.

In terms of market response, the 14 Pro and Pro max are popular, but 14 and 14plus sales are sluggish and channel prices keep dropping.

Data from Apple's earnings; compiled by Value investing

Mac-  far exceeded expectations

Q4 revenue of $11.51 billion, a 25.4% yoy jump, far exceeded market expectations and was the main contributor to Apple's earnings.

(1) Lower market expectations - global PC sales are sluggish

According to Canalys, global PC shipments fell 18% year-on-year in the third quarter, a decline higher than the 6.8% in the first quarter and 15% in the second quarter.

2)Apple's M2 chip and Order backlog

Apple has increased its PC market share with its M2 self-published chip. Of course, the main reason is that Mac backlogs in the previous quarter due to supply chain shortage were delivered.

If we combine Q3 and Q4 Mac revenue, the total revenue will be $18.89 billion, up 8.5% from the same period last year. Thus, the growth of Mac is not too outstanding:

Data from Apple's earnings; compiled by Value investing

iPad- remained sluggish

iPad revenue declined 13% year-over-year this quarter, mainly due to the demand pullback after pandemic dividend and strong dollar in the quarter.

At the same time, the release of the new iPad was postponed to October this year.

Data from Apple's earnings; compiled by Value investing

Wearable devices - significantly exceeding market expectations

Q4 revenue of $9.65 billion, up 9.8% year-on-year, significantly exceeding market expectations.

This was mainly due to the launch of the Apple Watch and the new AirPods Pro.

Data from Apple's earnings; compiled by Value investing

Services- The most notable decline

The most notable decline in Q4 came from service revenue, with revenue of $19.19 billion in the quarter, up just 5% year-over-year.

Data from Apple's earnings; compiled by Value investing

The 5% was a significant slowdown from the previous 2-digit growth. Apple's service revenue is primarily subscriptions, advertising and fees. So its the growth is dependent on hardware growth and user willingness.

Considering the economic headwinds in the third quarter and the strong dollar, service revenues were significantly impacted. Excluding foreign exchange, the business maintained a 2-digit growth rate in constant currency.

But in either way, the growth rate of service revenue has indeed slowed down.

Guidance for the next quarter

Management believes

overall growth will slow, mainly due to the negative impact of almost 10 percentage points from the strengthening of the US dollar.

Mac revenue will drop significantly in the next quarter without order backlogs;

service revenues are expected to grow, but will be more challenged by the macro economy.

Bottom Line

In terms of overall revenue in FY2022, full-year revenue of $394.33 billion, up 7.8% year-over-year.

Data from Apple's earnings; compiled by Value investing

Referring to Apple's growth rate in previous years, the high growth rate of 33% in FY2021 is difficult to maintain, and the growth rate of 7.8% in FY2022 is the norm.

With slow growth, Apple's P/E ratio is still 23.7x.

Too high or low? Different investors have different interpretations.

To make up for the lack of growth, Apple has increased its dividend and repurchase efforts, and will pay $3.7 billion in dividends and repurchase $25.2 billion in Q4.