Warren Buffett's Apple Spooks on Weak December Guidance

Company announces new products with high price tags, reports low iPhone sales

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Nov 01, 2018
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Apple Inc. (

AAPL, Financial), Warren Buffett (Trades, Portfolio)’s largest holding, said on Thursday that although fourth-quarter service revenues reached an all-time high of $10 billion, it saw lower-than-expected iPhone sales and offered light fiscal first-quarter revenue guidance.

The Cupertino, California-based tech giant reported $62.9 billion in revenue and $2.91 in earnings per diluted share for the three months ending Sept. 30, outperforming the consensus estimates of $61.57 billion in revenue and $2.78 in earnings per diluted share.

Company reports lower-than-expected iPhone sales “for the final time”

CEO Tim Cook said the company “celebrated the 10th anniversary of the App Store” with “the strongest revenue and earnings” in its history, including an all-time record $10 billion in service revenues. The company reported double-digit year-over-year revenue growth in each reporting segment, with Japan growing 34% and the rest of Asia Pacific growing 22%.

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Although the company reported strong revenue growth, it recorded 46.889 million iPhone sales, down from the consensus estimate of 47.5 million. However, Chief Financial Officer Luca Maestri said on the earnings call that the September quarter is the final quarter Apple will report unit sales for the iPhone, iPad and the Mac as such metrics are not as relevant anymore since there is nearly no correlation between the company’s performance and the number of iPhones sold. Additionally, Maestri said Apple has transitioned into a company that cherishes customer loyalty and service availability.

Company announces weak holiday quarter guidance on new product launches

Cook reiterated Apple’s commitment to deliver “huge advancements for [the company’s] customers” through the launch of several new products, which include new versions of the iPhone, iPad, Mac and Apple Watch. The company launched several new products across two keynote events: on Sept. 12, Apple announced the Apple Watch Series 4 and three new iPhones: the iPhone XS, the iPhone XS Max and the iPhone XR. On Oct. 30, the company announced additional products, which include the iPad Pro, a new MacBook Air and a Mac Mini. The starting prices of the above products contributed to an average selling price of $793, up 28% year over year and outperforming the consensus estimate of $750.78.

Although the company announced a strong lineup of products and services ahead of the holiday season, the company gave revenue guidance that was short of the consensus estimate: revenue guidance of $89 billion to $93 billion suggests an underperformance from the expected revenues of $92.9 billion.

Apple’s coveted trillion-dollar market cap in jeopardy

Although the company traded at $222.22 at market close, shares of Apple tumbled nearly 7% in post-market trading on the weak holiday quarter revenue guidance. The company traded as low as $206.05 in post-market trading, jeopardizing Apple’s market cap of $1 trillion.

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GuruFocus still ranks the company’s profitability 9 out of 10 on several positive investing signs, which include consistent revenue growth and a strong Piotroski F-score of 7. Even though the company’s operating margin has contracted approximately 4% over the past five years, its profit margins and returns are still outperforming over 95% of global competitors.

The Berkshire Hathaway Inc. (

BRK.A, Financial)(BRK.B, Financial) CEO has not released his third-quarter portfolio as the deadline is 45 days after quarter-end. As of the second quarter, Buffett owns 251,955,877 shares of Apple.

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Disclosure: No positions.

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