Why Did Apple Shares Drop Despite Q2 Beat?

The iPhone manufacturer, Apple (AAPL), reported fiscal Q2 2022 results which saw tremendous growth compared to the same quarter the previous year and smashed consensus estimates.

In addition to the iPhone smartphones, Apple also makes personal computers under the Mac brand and tablets under the iPad brand. It also offers a variety of digital services under brands such as Apple Music for music streaming and Apple Pay for mobile payments.

Despite stellar results, investors seemed more concerned about the future. On April 28, AAPL stock dropped during extended trading, after the management warned about a possible large revenue loss in the next quarter.

Q2 Earnings at a Glance

Revenue jumped 9% year-over-year to $97.3 billion and surpassed the consensus estimate of $93.89 billion. Sales grew across Apple’s major businesses, resulting in record iPhone, Mac, and services revenue. The earnings of $1.52 per share increased from $1.40 per share from the same quarter the previous year and beat the consensus estimate of $1.43 per share.

Apple CEO, Tim Cook, said “This quarter’s record results are a testament to Apple’s relentless focus on innovation and our ability to create the best products and services in the world.”

Dividend and Share Repurchase Programs Get a Boost

Apple plans to distribute a quarterly dividend of $0.23 per share on May 12, representing a 5% increase from the previous payment. The company has also added $90 billion to its share repurchase plan.

June Quarter Outlook 

Apple continues to face supply chain challenges, stemming from issues such as COVID-19 disruptions, chip shortages, and the war in Ukraine. In China, the COVID-19 resurgence has led to lockdowns in places like Shanghai, home to many Apple suppliers. 

These challenges are impacting the company’s ability to meet customer demand for its products. As a result, Apple expects these headwinds to hurt its June quarter revenue by between $4 billion and $8 billion.

Wall Street’s Take

On April 27, Evercore ISI analyst Amit Daryanani reiterated a Buy rating on Apple stock with a price target of $210, which indicates 28.3% upside potential.

Consensus among analysts is a Strong Buy based on 18 Buys and four Holds. The average Apple price forecast $194.22 implies upside potential of 18.7% to current levels. Shares have gained 23.3% over the past year.

Website Traffic 

During the March quarter, Apple’s Website Traffic Tool recorded a 492.8% year-over-year increase in total visits. An upward website traffic trend can indicate an increased interest in a company’s products, which can in turn offer a clue into the company’s performance. In Apple’s case, the traffic surge correctly predicted the company’s strong March quarter earnings results. 

Learn more about the Website Traffic tool in this video by Youtube sensation Tom Nash.

Key Takeaway for Investors

Apple’s June quarter revenue loss warning is temporary and should not affect the bigger picture, which is the company’s potential to keep growing in the coming years. In a CNBC interview following the March quarter report, Tim Cook said that the iPhone business is benefiting not only from existing customers upgrading their devices, but also from people switching from rival products like Android phones. 

The iPhone provides an important platform on which Apple can sell its various services. Therefore, expanding iPhone adoption implies a bright future for the company’s other businesses. Finally, Apple has the expertise and financial resources to adjust quickly to challenges, and it can do the same to minimize the blow from current supply chain constraints. 

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