Apple earnings preview: Can services double again?
Apple’s services segment had a strong fiscal 2020, and the holiday quarter is unlikely to be any different. Revenues increased 16% (see graph below), driven by favorable stay-at-home trends.
First test for Apple One
This will be the first quarter in which the success of Apple One will be tested. I suspect that the results will be satisfactory, to say the least.
The bundles may be Apple’s solution to soft demand for some of its less popular and recently launched services., which include News+, Arcade and Fitness+. This would be in line with my original take on Apple One:
“Apple’s One service bundle is all about nudging users to not only sign up for services that most want (Music, iCloud), but also for those that most people rarely think about (News+, Arcade). In my view, this could be the solution to the lack of traction problem seen in parts of Apple’s services offerings.”
Why Jim Cramer likes Apple here
On Friday, ahead of the Martin Luther King Jr. holiday, The Street’s Jim Cramer weighed in on Apple. He briefly argued that the stock was a “terrific buy” at current prices.
Supporting his position are the following couple of factors:
- Demand from China is much better than previously thought, including in Mac and Services.
- Shares are down about $10 from the late December peak, offering some value to newcomers.
China is looking great
Jim Cramer is probably right about the China opportunity in the holiday quarter.
Third party data suggests that Apple accounted for over 20% of smartphones sold in the country in the fourth calendar quarter. This is an impressive number, considering how domestic players tend to dominate this market.
Is cheaper “cheap enough”?
On the second point, Jim Cramer is also right: Apple is now cheaper than it was a mere three weeks ago. But whether “cheaper” is “cheap enough” is another question altogether.
Keep in mind that Apple stock has been up 63% in the past year and 424% in the past five. From this perspective, shares are now far from discounted.
On December 29, exactly when the stock reached its recent all-time high, the Apple Maven published a quick study on Apple’s valuation. The data…