Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down Apple’s latest earnings report with CFRA Analyst, Angelo Zino.
ALEXIS CHRISTOFOROUS: We have our eye on Apple this morning. If you take a look at the stock you wouldn’t know it, but they did post a strong quarter, topping estimates on both revenue and earnings, but iPhone sales disappointed. It looks like a lot of people were just holding out for the release of the iPhone 12. Let’s talk about it now with Angelo Zino, who covers Apple at CFRA Good morning, Angelo.
So I mean, should this really come as a great surprise to Wall Street? Of course a lot of folks were holding out, and iPhone demand was not great during that quarter. Do you think that today’s sell-off is a little overdone at Apple?
ANGELO ZINO: Well, it’s interesting. I mean, and I think you’re absolutely right. And I don’t know if that’s necessarily the crux of the sell-off here in terms of Apple. They did beat on both the top and the bottom line clearly. I mean, the disappointment was of course on the iPhone-side of things. They missed by about a billion and a 1/2. And then of course on China, down 29%– much worse than we anticipated.
I think kind of when we think about why the stock is down as much as it is here, I think, you know, from the bull-bear debate here, I think there’s a lot of concern potentially about the valuation of the stock, right? You’ve seen this massive run in the stock here, since the March lows more than doubling. Essentially the stock has nearly tripled from its early January 2019 lows.
And if you kind of look at, you know, just this past August, that massive run-up, you know, with the stock split taking place, I think a lot of that good news with this 5G cycle has largely been kind of baked in here, and I think that’s where the whole bear debate goes as far as the decline as here today.
BRIAN SOZZI: Angelo, do you think the start to preorders for the iPhone 5G have started off on a slower-than-expected foot?
ANGELO ZINO: No. I mean, as far as the 5G outlook is concerned here, I actually think, you know, after this call last night, we’re actually more bullish on this 5G cycle, and we actually upped our 5G phone estimate post this call because, you know, we look at it enough. A $1 and a 1/2 billion miss essentially goes into this next upcoming cycle, we think, going into the December and March quarter.
You know, that being said also you kind of look at replacement cycles. You look at, you know, especially China with that miss there. It really tells you that the consumer in China really is holding off on that 5G phone, and we think it’s going to do absolute fantastic, especially with four phones now relative to three phones last year. I mean, you’re talking up more of an inventory, you know, stocking up, you know, across the retail channel and what have you. So net-net, the numbers should be very good here and actually better than where the Street is looking at for the December and March quarters.
ALEXIS CHRISTOFOROUS: But, Angelo, Apple is not projecting into next quarter. I mean, should that be any bit of a red flag do you think?
ANGELO ZINO: Well, that’s probably the other disappointment as far as the quarter is concerned here– the lack of guidance again. You know, that being said, I think the fact that they did give qualitative commentary, very bullish qualitative commentary– that being said, you know, I think should calm a lot of nerves for investors. But again, definitely something the bears can hang their hat on as far as this quarter is concerned.
BRIAN SOZZI: The revenue pressure in China, how much stock do you put on that being a real problem over the next 12 months?
ANGELO ZINO: I mean, it remains to be seen. I think at the end of the day that 29% decline is really more of an anomaly as far as what we’re looking for here in the December quarter and thereafter. We think you’re going to see a very nice sharp and flexing inflection up in terms of China demand that actually could be a bullish catalyst as we go into December quarter results in January.
But that being said, we’re not putting much emphasis on that miss in terms of China. And, you know, it actually follows a quarter in the June quarter where China was actually much better than we had anticipated. So at the end of the day, when we look at that iPhone 11 cycle that just, you know, completed, it was overall a very good cycle relative to the conditions that were out there.
And as we kind of go now here into an iPhone 12 cycle, where we think there’s a lot of pent-up demand– you know, again, those replacement cycles have gotten really long. You’ve got a lot of old iPhones sitting out there. And especially in China where you’ve got so many 5G wireless service available to consumers out there, I think it’s really going to be a hot ticket out there.
ALEXIS CHRISTOFOROUS: I mean, here’s a company, Angelo, that’s sitting on $190 billion in cash. What do you think they should do with that money?
ANGELO ZINO: Well, you know, as far as management is concerned in utilizing that cash, they’ve done an absolutely phenomenal job with kind of deploying that cash. If you actually look at what they’ve done from 2012 to 2019, walked back about a third of their shares. You look at the stock today, about a $2 trillion valuation– absolutely great move at the time.
Sitting here today, I’d actually– if I were management, I’d actually tell them to take their foot a little bit off kind of the buybacks there and actually potentially look to get into the M&A type of market, focus on the services side of things where clearly that’s where investors are going to look at in terms of their valuation going forward. But that being said, I think as we’ve seen kind of management thus far, I think they’ve done an absolutely phenomenal job with the cash.
ALEXIS CHRISTOFOROUS: Yeah. Historically Apple has not been big in the M&A space, but they like to hold onto that cash and then give it back to investors. Angelo Zino of CFRA, thanks so much.
ANGELO ZINO: All right. Thanks for having me.