At 4% of the market cap and 10% of the Nasdaq QQQ’s, not to mention the 20% EPS weight (per IBES by Refinitiv), Apple (NASDAQ:) is not a small part of the US stock market.
The fact is, Apple is huge, and is now in the midst of a transition from a Technology hardware company to a Services business.
Apple was sold from many client accounts last Spring ’18, in the $160’s range. The stock is 25% higher since that sale, which took Apple from a top 10 position in client accounts down to near 30th in the position rankings, but with the news out of the conference call Thursday night about stopping disclosure of Apple’s product by unit, I remain comfortable with the decision.
The earnings preview of Apple posted to this blog last week showed upward revisions to numbers, but that changed with the comments after the conference call last Thursday.
Looking at the numbers this weekend, Apple’s fiscal 2019, 2020, and 2021 revenue numbers were revised higher, while the EPS estimates for the same years were kept the same or revised lower for fiscal 2019 and 2020. Fiscal 2021 did see a higher EPS number following earnings.
That means Apple could see ever-further margin pressure until the Services business grows substantially from 16% of revenue (as of 9/30/18).
Per a research note out of Jefferies, Apple will start disclosing their services gross margin with the December ’18 earnings release, which is expected to be quite higher than hardware gross margin.
Here is my biggest worry about Apple and this pressure could get worse:
Here is why investors are starting to see some of the quality of earnings diminish for Apple:
Here is a note from May 6th from this