Apple pops after weak Q1 but 'strengthening' customer base to provide tailwind
nayuki

Apple (NASDAQ:AAPL) shares erased earlier losses and gained more than 3.5% in mid-day trading on Friday after the company reported a weaker-than-expected first-quarter, but the weakness was largely driven by foreign exchange and supply chain issues. As such, several Wall Street firms said the company's "strengthening" customer base should provide a tailwind into 2023.
Wedbush Securities analyst Dan Ives, who has an outperform rating on Apple (AAPL), noted that the growth story for the Tim Cook-led company is "holding up much firmer than the Street had feared in this economic uncertain backdrop," particularly as China continues to come out of its COVID-related economic malaise.
"With China the hearts and lungs of the Apple story this Cook commentary was key and will be digested well by investors this morning in our opinion," Ives wrote in an investor note.
Speaking on the conference call, CFO Luca Maestri said revenue performance for the March quarter is expected to be "similar" to the December quarter, which would mark an acceleration. Apple (AAPL) also expects foreign exchange to be a headwind and account for negative 5 percentage points.
Services revenue is expected to grow year-over-year, though digital advertising and mobile gaming will continue to see weakness. The iPhone is expected to accelerate sequentially, while the iPad and Mac are expected to decline double digits year-over-year.
Maestri also said that gross margins are expected to be between 43.5% and 44.5%, with operating expenses between $13.7B and $13.9B.
Ives characterized the March quarter guidance as "conservative" and with Apple (AAPL) having surpassed 2B active devices, including an estimated 1.2B iPhones, it "speaks to a strengthening and growing customer base."
Wells Fargo analyst Aaron Rakers, who has an overweight rating and per-share price target of $185 on Apple (AAPL), noted that the continued recovery in iPhone 14 Pro and iPhone 14 Pro Max supply is important, especially with "services monetization in focus."
Citi analyst Jim Suva noted that when adjusted for foreign exchange, Apple's (AAPL) quarterly results and outlook would be flat, "which is materially better than other consumer electronic companies," especially noteworthy given the strength in services and the installed base.
Suva has a buy rating and $175 per-share price target on Apple.
On Thursday, Colorado Senator Michael Bennet wrote a letter to Apple (AAPL) CEO Tim Cook and Google (GOOG) (GOOGL) CEO Sundar Pichai, asking them to ban TikTok from their respective app stores.