Apple reported a pretty terrible Q2 earnings last night, with revenue down 13% to $50.6 billion and EPS down 22% to $1.90, below expectations.
This morning, analysts in global investment banks say … they loved it!
The main theme from notes to investors this morning is that the bad news about iPhone — declining units sold this quarter and maybe throughout the rest of the fiscal year — is now priced in and quantified. So they are looking further ahead to the launch of iPhone 7 in autumn, which they believe will kickstart sales growth again.
Many analysts thus have a buy rating on AAPL right now, even though the stock flopped by 7% overnight and sits at about $104.35 prior to the opening of the New York markets.
Here’s a look at who is saying what.
Morgan Stanley: BULLISH. Apple could do more M&A at a higher price than the $3 billion it paid for Beats.
Katy Huberty and her team:
We expect the company to launch more subscription services, potentially through acquisitions, which Apple sounds more open to. We think the company has both the appetite and financial flexibility to spend more than the current record of $3B for Beats. We note that we have no knowledge of any potential deals.
Andy Hargreaves and Evan Wingren say:
Apple's weaker-than-expected FQ3 (June) revenue and gross-margin guidance largely reflects poor demand forecasts that the company made early in the iPhone 6s cycle. The company over-filled the channel with high-end iPhone 6s units, and is now taking corrective action to clear the channel in front of the iPhone 7 cycle. While this has a clear negative impact on near-term results, it is largely backward-looking, in our view. Further, it does not change our view that replacement volume is likely to grow strongly in the iPhone 7 cycle, which should drive overall iPhone unit growth through F2017.
Maynard Um and his team:
Analysis suggests now would be the time to get more bullish on AAPL shares. There is no question that decelerating iPhone growth (in part due to inventory destocking) combined with declining gross margins, under most circumstances, should be a cause for concern, which we think is why AAPL shares are down 8% in the aftermarket. However, our units per carrier analysis suggests that investors should get bullish around the iPhone 7 cycle as every non-S cycle sees a higher units per carrier versus an S-cycle and typically sees an increase non-S to non-S cycle.
Anil Doradla and team:
We believe that while the Street will not be pleased with second-quarter results, investors will be incrementally concerned with third-quarter guidance. In our opinion, the guidance implies iPhone units in the range of roughly 37 to 40 million units, far below Street estimates of 44.1 million units entering the quarter. We believe that Apple has been negatively affected by the ongoing headwinds in the mobile industry, weaker-than-expected results in China, and an elongated upgrade cycle in comparison to the record results set by the iPhone 6.
Aaron C. Rakers and his team:
Greater China: $12.5B (-26% y/y) reflected notable weakness in Hong Kong and a reported -11% y/y (-7% in CC and -5% on sell-thru) in Mainland China. We believe investors could question this disconnect relative to MIIT data suggesting total smartphones at +12% in China for C1Q16 (+23% y/y for non-Android).
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