Market Snapshot
briefing.com
| Dow | 33866.33 | -187.56 | (-0.55%) | | Nasdaq | 12000.26 | -200.57 | (-1.64%) | | SP 500 | 4130.99 | -48.77 | (-1.17%) | | 10-yr Note | -54/32 | 3.53 |
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| | NYSE | Adv 787 | Dec 2162 | Vol 982 mln | | Nasdaq | Adv 1679 | Dec 2875 | Vol 5.8 bln |
Industry Watch
| Strong: -- |
| | Weak: Real Estate, Utilities, Consumer Discretionary, Communication Services, Materials, Consumer Staples |
Moving the Market
-- Stronger than expected January jobs report has the market questioning the path forward for Fed rate hikes
-- Mega cap stocks trade on the weaker side after earnings reports from Apple (AAPL), Amazon.com (AMZN), and Alphabet (GOOG)
-- Sharp rise in Treasury yields
-- A sense that the market is due for consolidation after strong gains in January
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Closing Summary
03-Feb-23 16:25 ET
Dow -127.93 at 33925.96, Nasdaq -193.86 at 12006.97, S&P -43.28 at 4136.48
[BRIEFING.COM] The stock market showed some impressive resilience to selling efforts early on before the main indices faded away around midday and ultimately settled the session near their worst levels of the day. Market participants were likely driven by a feeling that the market had gotten overbought/overextended and was due for some consolidation.
Investors reacted negatively to some disappointing earnings and/or guidance from several notable companies, namely Alphabet (GOOG 105.22, -3.58, -3.3%), Amazon.com (AMZN 103.39, -9.52, -8.4%), Qualcomm (QCOM 135.02, -0.83, -0.6%), Starbucks (SBUX 104.30, -4.85, -4.4%), and Ford (F 13.23, -1.09, -7.6%). Apple (AAPL 154.50, +3.68, +2.4%) also missed earnings estimates and traded down 2.0% at this morning's low, but recovered from its early loss and closed the session with a gain.
The main sticking point for investors is that the disappointing earnings guidance does not bode well for the overall 2023 earnings picture.
Market participants were also digesting stronger than expected economic data that created some doubts as to whether the Fed will pause its rate hikes soon and cut rates at all before the end of the year. Briefly, the January Employment Situation Report showed some stunning growth in nonfarm payrolls (+517,000), and the January Services PMI was stronger than expected and back in growth mode with a 55.2% reading.
Treasuries sold off sharply in response to the data releases. The 2-yr note yield rose 21 basis points to 4.29% and the 10-yr note yield rose 14 basis points to 3.53%. The U.S. Dollar Index rose 1.2% to 102.96. Separately, the fed funds futures market is now accounting for the prospect of a third 25 basis point rate hike in May. According to the CME FedWatch Tool, the probability of a rate hike in May, in addition to the one that is fully priced in for March, increased to 61.8% from 30.0% yesterday.
Equities sold off in a broad and orderly fashion today. The Vanguard Mega Cap Growth ETF (MGK) closed down 1.5%, the Invesco S&P 500 Equal Weight ETF (RSP) closed down 1.2%, the S&P 500 closed down 1.0%, and the Nasdaq closed down 1.6%.
All 11 S&P 500 sectors registered losses ranging from 0.1% (financials) to 3.1% (consumer discretionary).
- Nasdaq Composite: +14.7% YTD
- Russell 2000: +12.8% YTD
- S&P Midcap 400: +11.4% YTD
- S&P 500: +7.7% YTD
- Dow Jones Industrial Average: +2.4% YTD
Reviewing today's economic data:
- January Nonfarm Payrolls 517K (Briefing.com consensus 190K); Prior was revised to 260K from 223K; January Nonfarm Private Payrolls 443K (Briefing.com consensus 175K); Prior was revised to 269K from 220K;
- January Unemployment Rate 3.4% (Briefing.com consensus 3.6%); Prior 3.5%; January Avg. Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.3%; January Average Workweek 34.7 (Briefing.com consensus 34.4); Prior was revised to 34.4 from 34.3
- The key takeaway from the report is that it has the market questioning its own conviction about the prospect of the Fed cutting rates before the end of the year, as it is thought the remarkable strength of the report could have the Fed questioning its own conviction about pausing rates soon.
- January IHS Markit Services PMI - Final 46.8; Prior 46.6
- January ISM Non-Manufacturing Index 55.2% (Briefing.com consensus 50.3%); Prior was revised to 49.2% from 49.6%
- The key takeaway from the report is that business activity for the services sector, which comprises the largest swath of U.S. economic activity, quickly rebounded into growth mode after contracting for the first time since May 2020 in December. That should be seen as supportive for the soft-landing scenario.
Cummins (CMI), ON Semiconductor (ON), and Tyson Foods (TSN) are among the companies reporting earnings ahead of Monday's open.
There is no U.S. economic data of note on Monday.
market trying to climb off lows
03-Feb-23 15:30 ET
Dow -147.89 at 33906.00, Nasdaq -187.95 at 12012.88, S&P -42.95 at 4136.81
[BRIEFING.COM] The major indices are trying to climb off session lows ahead of the close, but continue to sport sizable losses.
Treasuries ended the weekly on a sharply lower note in response to a much stronger than expected Employment Situation report for January. The 2-yr note yield rose 21 basis points to 4.29% and the 10-yr note yield rose 14 basis points to 3.53%.
Cummins (CMI), on Semiconductor (ON), and Tyson Foods (TSN) are among the companies reporting earnings ahead of Monday's open.
There is no U.S. economic data of note on Monday.
Main indices continue to pullback; energy complex futures settle lower
03-Feb-23 15:00 ET
Dow -187.56 at 33866.33, Nasdaq -200.57 at 12000.26, S&P -48.77 at 4130.99
[BRIEFING.COM] The market continues to pullback with the main indices all trading at or near their worst levels of the day.
San Francisco Fed President Daly (not an FOMC voter) said in a Fox Business interview "The Fed plans additional tightening and then will hold rates at elevated levels."
Energy complex futures settled the session on a downbeat note. WTI crude oil futures fell 3.2% to $73.28/bbl and natural gas futures fell 1.8% to $2.41/mmbtu.
On a related note, the S&P 500 energy sector (+0.1%) sits alone in positive territory.
Clorox outperforms following earnings on down day for S&P 500
03-Feb-23 14:30 ET
Dow -171.49 at 33882.40, Nasdaq -182.46 at 12018.37, S&P -44.97 at 4134.79
[BRIEFING.COM] The benchmark S&P 500 (-1.08%) is in second place on Friday afternoon, just a whisker above lows.
S&P 500 constituents MarketAxess (MKTX 344.74, -35.19, -9.26%), Intuit (INTU 423.62, -28.54, -6.31%), and Generac (GNRC 122.77, -8.19, -6.25%) pepper the bottom of the S&P. After hitting a near 52-week high yesterday shares of MKTX peel off those levels, while GNRC slides after Guggenheim downgraded their recommendation to Neutral citing the stock's recent gains.
Meanwhile, Clorox (CLX 152.58, +11.58, +8.21%) is atop the standings following last night's earnings/guidance.
Gold falls after stronger than expected jobs report
03-Feb-23 14:00 ET
Dow -118.47 at 33935.42, Nasdaq -130.89 at 12069.94, S&P -33.61 at 4146.15
[BRIEFING.COM] The pace of the afternoon decline has slowed in the last half hour, though the tech-heavy Nasdaq Composite (-1.07%) is still within a stone's throw of lows, down almost 131 points.
Gold futures settled $54.20 lower (-2.8%) to $1,876.60/oz, pressured this morning's stronger than expected jobs report which served to magnify gains in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is up about +1.1% to $102.86.
Earnings and employment data put scowl on market's face at first blush
There have been three faces to the equity futures market since yesterday's close.
The first face had a real scowl after Apple (AAPL), Alphabet (GOOG), Amazon.com (AMZN), Qualcomm (QCOM), Starbucks (SBUX), and Ford (F) all reported disappointing earnings and/or guidance. That scowl saw the Nasdaq 100 futures trading 265 points lower or 2.1% below fair value.
The second face had more of a smirk as the futures moved well off their lows, bolstered presumably by a belief that the earnings/revenue shortcomings for the aforementioned companies will be relatively short in duration. Apple for its part was down more than 3.0% following its report last night, but that loss was pared to a 0.5% decline in pre-market trading, and when it was, the Nasdaq 100 futures were down "only" 95 points, which left them 0.7% below fair value.
The third face is resembling more of the first face. That's because the January Employment Situation Report showed much stronger than expected payroll growth, as well as upward revisions in November and December that were a combined 71,000 higher than previously reported. This report also included benchmark revisions to establishment survey data for March 2022, which resulted in the total nonfarm employment level for March 2022 being revised upward by 568,000 (or 506,000 on a not seasonally adjusted basis).
Beyond the payroll growth in January, which was widespread and included a gain of 128,000 for leisure and hospitality, a 105,000 increase in private education and health services, and a 25,900 increase in temporary jobs, the unemployment rate of 3.4% was the lowest since 1969. In turn, the average workweek jumped to 34.7 hours from 34.4 hours, which was a boon for aggregate wage growth.
Average hourly earnings were up 4.4% year-over-year versus 4.8% in December.
The key takeaway from the report is that it has the market questioning its own conviction about the prospect of the Fed cutting rates before the end of the year, as it is thought the remarkable strength of the report could have the Fed questioning its own conviction about pausing rates soon. The 2-yr note yield is up 16 basis points to 4.24% and the 10-yr note yield is up 11 basis points to 3.50%
This employment report, however, is one to be celebrated in that it supports the narrative of a soft landing (and maybe not even that) with the helpful combination of strong payroll growth and a moderation in average hourly earnings.
Currently, the S&P 500 futures are down 51 points and are trading 1.2% below fair value; the Nasdaq 100 futures are down 258 points and are trading 2.1% below fair value; and the Dow Jones Industrial Average futures are down 200 points and are trading 0.6% below fair value.
Other notable headlines from the Employment Situation Report are as follows:
- January nonfarm payrolls increased by 517,000 (Briefing.com consensus 190,000). The 3-month average for total nonfarm payrolls increased to 356,000 from 291,000.
- December nonfarm payrolls revised to 260,000 from 223,000
- November nonfarm payrolls revised to 290,000 from 256,000
- January private sector payrolls increased by 443,000 (Briefing.com consensus 175,000)
- December private sector payrolls revised to 269,000 from 220,000
- November private sector payrolls revised to 228,000 from 202,000
- January unemployment rate was 3.4% (Briefing.com consensus 3.6%), versus 3.5% in December
- Persons unemployed for 27 weeks or more accounted for 19.4% of the unemployed versus 18.5% in December
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 6.6% versus 6.5% in December
- January average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus an upwardly revised 0.4% (from 0.3%) in December
- Over the last 12 months, average hourly earnings have risen 4.4%, versus 4.8% for the 12 months ending in December
- The average workweek in January was 34.7 hours (Briefing.com consensus 34.4), versus 34.4 hours in December
- Manufacturing workweek increased 0.4 hour to 40.5 hours
- Factory overtime increased 0.1 hour to 3.1 hours
- The labor force participation rate increased to 62.4% from 62.3% in December
- The employment-population ratio increased to 60.2% from 60.1% in December
-- Patrick J. O'Hare, Briefing.com
Qualcomm still hurt by elevated inventory and soft handset demand, but a bottom is in sight (QCOM)
A steep slowdown in demand for smartphones and IoT devices continued to weigh on chip company Qualcomm (QCOM) in 1Q23 as reflected in its revenue miss, but an optimistic outlook for 2H23 is pushing investors to look beyond its current troubles. Those troubles are indeed significant, though, as the company wades through an elevated inventory situation among OEMs due to sluggish consumer demand and the easing of supply chain disruptions.
- Recall that last quarter, QCOM issued a very bleak outlook for Q1 that badly missed EPS and revenue estimates. That gloomy forecast was partly a function of a deteriorating handset market, which prompted QCOM to lower its 2022 3G/4G/5G handset volume projection to a low double-digit decline from its prior outlook of a mid-single-digit decline.
- Last night, the weakness in the smartphone market was on full display when Apple (AAPL) -- which uses QCOM's modem chips -- reported a disappointing 1Q23 earnings report that was driven by an iPhone sales miss.
- Making matters worse, several end markets within the IoT space are also experiencing weaker-than-expected demand, worsening the channel inventory situation. Consequently, QCOM's near term outlook hasn't improved much as the company's Q2 EPS and revenue guidance were below expectations at the midpoint of their respective ranges. To add some context, even if Q2 revenue comes in at the high end of the $8.7-$9.5 bln estimated range, that would equate to a yr/yr decline of 14% -- QCOM's worst decline since 4Q19.
Based on QCOM's poor Q1 results and discouraging Q2 outlook, it may seem surprising that the stock is trading higher today. We believe there are a few reasons for its relative strength.
- First, the worst of the inventory related headwinds may pass this quarter. QCOM is anticipating a sequential decline in IoT revenue for Q2, following growth of 7% in Q1, but the tide may begin to turn thereafter. During the earnings call, CEO Cristiano Amon commented that he's optimistic that demand and channel inventory will normalize in 2H23.
- Second, like many other tech companies, QCOM is stepping up its cost-cutting initiatives. More specifically, further spending reductions and the streamlining of operations will reduce operating expenses by about 5% compared to the run rate exiting FY22.
- Lastly, QCOM's diversification efforts are paying off and should ultimately result in stronger growth. A key component of Amon's strategy is to lessen QCOM's dependence on the smartphone market and the company is having some success in that endeavor. In particular, QCOM's entrance into the automotive market with its Snapdragon digital chassis is becoming a potential game-changer. In Q1, automotive revenue jumped by 58%, matching last quarter's growth. With a design win pipeline of over $30 bln, QCOM is just scratching the surface of this opportunity.
Overall, the quarter shook out as expected with high inventory levels and soft handset demand weighing on QCOM's results and guidance. Despite the lackluster report, the stock is holding up quite well as investors pin their hopes on a turnaround later this year.
Starbucks' recent run ground to a halt as weakness in China weighs on DecQ results (SBUX)
Starbucks' (SBUX -3%) recent run ground to a halt today after the global coffee retailer missed earnings and sales expectations in Q1 (Dec). SBUX's second-largest market, China, which comprised roughly 9% of FY22 (Sep) revs, was a considerable drag on financial performance in the quarter. Comps in the region took a 29% spill, with comparable transactions tumbling 28% yr/yr and average ticket slipping by 1%.
SBUX expects challenges in China to persist but is already seeing signs of a recovery. However, management conceded that it is difficult to nail down the timing, leading to only reaffirming its FY23 (Sep) guidance.
- The headwinds in China took their toll on Q1 numbers, slicing $0.06 off of EPS, causing SBUX to post earnings of $0.75, just missing analyst estimates. Meanwhile, sales grew 8.2% yr/yr to $8.71 bln, less than the market anticipated, on global comp growth of +5%.
- The leading factor behind China's weak performance in Q1 was the easing of COVID-19 restrictions, which drove a wave of COVID-19 cases, resulting in comps coming in four times worse than SBUX expected. It also represented worsening conditions relative to Q4 (Sep), when comps fell just 16%.
- Furthermore, whereas management was optimistic that the massive jump from a -44% comp in Q3 (Jun) to just a -16% comp in Q4 underscored a swift recovery as early as Q2 (Mar), it now does not have clear insight into when a rebound may occur.
- Still, SBUX noted that it is hopeful a recovery will begin in the back half of FY23, citing patterns of post-COVID behaviors in other countries as evidence.
Outside of China, SBUX's Q1 results shined. For example, in North America, SBUX's largest market by far at over 72% of FY22 sales, the company saw a sequential acceleration of its record demand in Q4, delivering +10% comp growth. Active Starbucks Rewards membership in the U.S. grew 15% yr/yr and 6% sequentially to over 30 mln, a significant milestone as members drove a record 56% of tender, up 3% yr/yr, underpinning higher customer engagement. A similar story took hold internationally, as comps climbed +11%, fueled by a recovery in Japan and tourism activity rebounding in EMEA.
Bottom line, if not for COVID-related disruptions in China, SBUX would have brewed much more compelling results in Q1. Although there is uncertainty about when China will recover, the good news is that it is at least a matter of "when." Once China bounces back, SBUX should see a significant boost in its quarterly performance. The company has been pouring time and money into enhancing the flexibility and efficiency of its stores in China, giving it a much stronger footing to experience accelerating revenue growth once the region rebounds. Management has already seen this pattern play out in markets worldwide, including the U.S.
Alphabet's downside results bring dose of reality, but AI opportunity and cost cuts give hope (GOOG)
The positive vibes that spilled over from Meta Platforms' (META) better-than-feared earnings report faded for Google parent Alphabet (GOOG) after the company posted its fourth consecutive EPS miss last night. GOOG's Q4 earnings shortfall was accompanied by yr/yr revenue decreases of 1.6% and 7.8% in its Search and YouTube businesses, respectively. In fact, excluding the pandemic-impacted quarter of 2Q20, this was the first quarter in GOOG's history that its total advertising revenue declined on a yr/yr basis, dipping by 3.6% to $59.0 bln. While META's results provided some relief, GOOG's results are offering a stark reminder that digital advertising dependent companies are still fighting an uphill battle as marketers rein in spending.
- Negative foreign exchange effects did make GOOG's performance look a bit worse than it really was. On a constant currency basis, revenue for the bread-and-butter Search and Other segment increased moderately over last year.
- Staying true to recent form, the retail and travel categories exhibited strength, while finance was a laggard. Broadly speaking, though, the company experienced a further pullback in advertiser spend, with CEO Sundar Pichai commenting that the macroeconomic climate has become more challenging.
- Enterprises aren't just becoming more judicious with their marketing investments. A common theme among technology companies is that some of their customers are reducing or delaying IT expenditures, and GOOG isn't immune to this phenomenon. Although Google Cloud generated solid revenue growth of 32%, that's down from 38% last quarter. That lags Microsoft (MSFT) Azure's Q4 growth of 38%, but it's well ahead of the 20% growth achieved by Amazon (AMZN) Web Services. What's concerning, though, is that MSFT guided for a 4-5% decline for Azure in 1Q23, indicating that enterprise IT spending has weakened further.
- The good news is that Google Cloud's operating losses are now shrinking. After narrowing to ($699) mln from ($858) mln last quarter, Cloud's operating loss improved to ($480) mln in Q4. During the earnings call, both Mr. Pichai and CFO Ruth Porat stated that the company remains "very focused on Google Cloud's path to profitability."
- That sharpened focus on profitability extends to the rest of the company. GOOG is reengineering its entire cost structure as it slows the pace of its operating expense growth. On January 20, GOOG ramped up its cost-cutting efforts when it announced a workforce reduction of 12,000 roles, but its plan doesn't end there.
- In 2023, the pace of hiring will slow considerably, while at the same time, the use of AI and automation is expected to improve productivity across operational tasks. Additionally, a tighter lid on spending with suppliers and vendors, combined with real estate optimization, will drive more cost savings. One caveat, however, is that most of the impact from these actions won't filter through until 2024.
Beyond the enhanced focus on expenses, there are a couple other key positives to note.
- For instance, YouTube Shorts, which is GOOG's answer to TikTok's short-format video platform, is experiencing strong growth. Specifically, Shorts is now averaging 50 bln daily views compared to 30 bln at the end of Q3. Importantly, the monetization of Shorts is progressing with GOOG introducing revenue sharing this week.
- Another bright spot was the subscription business, which helped drive a 7.7% revenue increase for GOOG's "Other" segment. In particular, YouTube Music Premium and YouTube TV generated substantial subscriber growth, helping to offset continued weakness in Play revenue.
- Lastly, GOOG spent a significant portion of last night's earnings call discussing its opportunities in AI, which Mr. Pichai described as "the most profound technology its working on today." Within the advertising business, GOOG intends to use AI to deliver improved search experiences and better measurement tools, driving higher ROI for advertisers. Outside of advertising, GOOG disclosed that it will make its LaMDA language available to the public soon, enabling people to interact directly with it as a companion to search.
The main takeaway is that it was another disappointing quarter for GOOG, but the EPS miss isn't overly surprising given that GOOG was late to the cost-cutting party. We believe that most investors already looked past this earnings report and are weighing whether 2023 will hold better results. By prioritizing improvements to its cost base and investing in its most promising opportunities, such as AI, YouTube Shorts, and Subscriptions, a meaningful turnaround could indeed transpire this year.
Amazon not looking too Prime; mid-teens AWS growth in January was a bit of a Yikes moment (AMZN)
Amazon (AMZN -4%) is lower today following its Q4 earnings report last night. As we stated in our preview, we had several concerns heading into this report. Revenue rose 8.6% yr/yr to at $149.2 bln, which was above the high end of prior guidance of $140-148 bln, and it was nicely above consensus. The guidance was slightly disappointing with the mid-point of Q1 revs below consensus, while Q1 operating income guidance of $0-4 bln was generally in-line with street estimates.
- EPS included an investment loss in Rivian. As such, the more important metric for profitability is operating income, which at $2.737 bln was above the mid-point of prior guidance of $0-4 bln. It is frustrating that AMZN does not provide an adjusted EPS number, but that makes the comparison to operating income all the more important. It's a clean apples-to-apples comparison as the investment loss is below the operating income line.
- On the retail side, Amazon says customers remain cautious about spending. Customers spent less on discretionary categories and shifted to lower-priced items and value brands in categories like electronics. However, they continued to spend on everyday essentials such as consumables, beauty and soft lines. Early Prime Day in October and the Thanksgiving to Cyber Monday holiday weekend outperformed expectations as customers responded to millions of deals. Third party sellers remain a key contributor and they comprised a record 59% of overall unit sales in Q4.
- As we said in our preview, MSFT's weak Azure result made us nervous for AWS and that turned out to be the case. Revenue (constant currency) growth rates continue to slow in recent quarters: +20% CC in Q4, +28% CC in Q3, +33% CC in Q2, +37% CC in Q1, +40% CC in Q4 last year. Also, segment operating margin fell to 24.3% vs 29.8% last year and 26.3% in Q3.
- Starting back in the middle of Q3, Amazon saw its AWS growth rate slow as enterprises of all sizes evaluated ways to optimize their cloud spending. As expected, these optimization efforts continued into Q4 and the company expects they will continue to be a headwind to AWS growth in at least the next couple of quarters. In January, AWS revenue growth was in the mid-teens. The weakness is across all industries, with particular weakness seen from mortgage companies that are seeing lower volumes. Companies involved in crypto and advertising are also spending less. The silver lining here is that its new customer pipeline remains healthy.
- The one positive surprise was maybe its Advertising Services segment, which held up fairly well. It posted +23% CC revenue growth to $11.56 bln. That is generally in-line with recent quarters: +30% CC in Q3, +21% CC in Q2 and +25% CC in Q1.
Overall, the concerns we mentioned in our preview came to pass for the most part. The retail operations held up fairly well, but AWS was a problem area. With Azure coming up short, most expected a weak AWS number and we got it. But we think what is really spooking investors is that comment about mid-teens AWS growth in January. That was a bit of a Yikes! moment, at least to us and portends continued slowing growth in Q1. We also think the stock had gotten a little ahead of itself (+34% YTD), so people are using this as a reason to book recent gains.
Apple recoups earlier losses as investors keep the spotlight on the many bright spots in DecQ (AAPL)
Apple (AAPL +3%) is amid a strong comeback today despite registering top- and bottom-line misses in Q1 (Dec) due to a continually unfavorable macroeconomic environment. Also, the tech giant forecasted Q2 (Mar) sales performance to mirror Q1, translating to another rare yr/yr decline and below analyst projections.
In addition to weakening consumer sentiment, AAPL faced other challenges outside its control in Q1, including a relatively strong U.S. dollar and supply chain constraints. These headwinds resulted in adjusted earnings slipping by 10.5% yr/yr to $1.88 and revs sinking by 5.5% to $117.15 bln, AAPL's first quarterly decline since 2Q19 (Mar). Additionally, the revenue from iPhones, Macs, and wearables missed analyst estimates in the quarter.
However, despite the tepid headline results and climbing over 20% to start the year, shares are holding up nicely today, recouping their initial losses.
- A significant factor buoying the stock was that AAPL has more of a supply problem than a demand one, similar to last quarter. iPhone supply could not keep pace with demand in Q1, causing ship times to extend well beyond what AAPL anticipated.
- Also, although iPhone supply was constrained during the quarter, AAPL managed to keep sales from dipping, maintaining relatively flat iPhone revs yr/yr at $65.8 bln. Meanwhile, iPad revenue jumped by over 13% yr/yr to $9.4 bln, crushing the consensus, which called for a single-digit decline.
- On the flip side, AAPL does not expect iPad to continue seeing growth, forecasting a double-digit decline yr/yr in MarQ. AAPL provided the same outlook for Mac sales.
- It was also encouraging to hear CEO Tim Cook comment that production is now back to where it should be, especially after several disruptions in China throughout the past few months sparked heightened uncertainty. As a result, AAPL projects iPhone revs to accelerate sequentially in MarQ.
- Furthermore, if not for foreign exchange impacts, which clipped 800 bps off sales growth in the quarter, AAPL would have seen positive growth yr/yr and posted growth in most of the markets it tracks. The same story will also play out in MarQ, as AAPL projects FX headwinds to dent sales growth by 5 pts.
- AAPL also reached a milestone in the quarter, boasting over two billion active devices as part of its installed base, double the figure from seven years ago. The significance of this achievement is that it represents a sturdy foundation for future ecosystem expansion.
AAPL tempered expectations heading into Q1, expecting revs to decelerate sequentially and Mac revs to experience a substantial decline due to challenging comps. As a result, although its Q1 report was not exactly crisp, AAPL delivered relatively decent numbers, especially when stacked against the numerous obstacles it had to endure.
It is crystal clear by now that 2023 will be a turbulent year for tech firms with heavy consumer exposure. However, it is hard to bet against AAPL and its exceptional brand loyalty, especially when the company continues to demonstrate that demand remains sound.
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