Apple's Across-The-Board Beat: 'Tim Cook Is Giddy, And He Should Be'

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Apple Inc. AAPL trades at an all-time high; each of its categories and geographies grew last quarter for the first time in three years; management guided for higher-than-expected revenue and gross margin. And Loup Ventures managing partner Gene Munster thinks the firm has yet to peak. 

“We believe over the next two quarters the story continues to improve as the iPhone X inches ASPs [average selling prices] higher,” Munster said in a Friday note.

Chapter 1: The iPhone

Munster predicts a 2018 iPhone ASP of $740 against the Street’s $722, a model partly justified by CEO Tim Cook’s “bullishness” on the iPhone X cycle. Cook indicated on Thursday’s conference call that orders are “very strong,” and Munster anticipates full-year demand beyond consensus forecasts.

Additionally, the iPhone 8 Plus has reportedly so far outperformed earlier Plus models, including the iPhone 6 Plus that constituted about 60 percent of iPhone 6 sales during the launch quarter.

Chapter 2: Services

Munster has long considered Services to be Apple’s biggest opportunity, and it’s getting bigger.

“The incremental aspect to the Services story is the concept that iPhone owners are purchasing phones on a consistent basis that is beginning to mirror the predictability of a SaaS business,” he said. “This goes beyond the iPhone upgrade program and taps into more than a billion iOS users that are increasingly becoming reliable as to when they upgrade their phone.”

The theme is expected to yield a steady, mid-single-digit iPhone growth rate after 2018.

Chapter 3: A Brief Fall

The iPhone’s “hyper-growth” next year is seen to correspond with 22-percent revenue growth, a metric forecasted at just 5 percent in 2019.

“Historically, that shift has been negative for AAPL’s multiple in the near term,” Munster said. “... It could take a couple additional quarters (June-18, September-18) for investors to regain their footing that the Apple story longer-term will emerge as a Services play, which should be favorable to AAPL’s multiple in the long-term.”

At the time of publication, Apple was trading at $173.20, up 3 percent following the firm’s Thursday earnings beat.

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Photo courtesy of Apple.