Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

Apple, Inc. Expects a Massive Holiday Quarter

There were a number of takeaways from Apple's (NASDAQ: AAPL) record fourth quarter. For instance, revenue and earnings per share both increased by double digits, and revenue for the iPhone, Mac, iPad, services, and other products segments all up year over year. Some segments were up more than 30%.

But a single metric from the quarter arguably stole the show: $85.5 billion, the midpoint of Apple's guidance range for its first-quarter revenue. Despite reports of iPhone X production woes, management expects a monster holiday quarter.

Apple customers wait in line at an Apple store to buy the iPhone X on Nov. 3. Image source: Apple.

Apple's enormous guidance

For its first fiscal quarter of 2018, which corresponds to the fourth calendar quarter of the year and the holiday season, Apple said it expects revenue to be between $84 billion and $87 billion.

The midpoint of this guidance range, $85.5 billion, represents a strong 7.1% year-over-year increase compared to the year-ago quarter. Put another way, it's more than $7 billion higher than the $78.4 billion of record revenue Apple garnered last holiday season.

Going into the fourth-quarter earnings release, there were concerns about whether guidance for the holiday quarter could live up to expectations. Not only were there daily reports of production constraints for the new iPhone X, but Apple's later launch date for the new iPhone compared to normal (the beginning of November versus late September) confirmed that production was running behind compared to previous iPhone launches.

Apple customer holding the iPhone X on launch day. Image source: Apple.

With less than two months for Apple to get the iPhone X into the hands of consumers during the holiday quarter -- one month less than usual -- some investors were worried it simply wouldn't be able to ship as many iPhones as usual. But despite the iPhone X's later launch, the company's guidance for total revenue of about $85.5 billion suggests it expects year-over-year growth in iPhone revenue during the quarter; since the iPhone accounts for over half of Apple's total revenue, management's guidance for the trajectory of overall revenue implies it expects a similar trajectory for the iPhone.

It gets better

But can investors trust this bullish outlook from management for the first quarter? Absolutely. In fact, when taking into consideration how conservative its guidance has proved to be in the past, the company's monstrous guidance begins to look even better.

Apple's revenue has exceeded the midpoint of its guidance range for six quarters in a row, highlighting management's tendency to provide a conservative outlook. Even more, actual revenue has exceeded the midpoint of its guidance range by an average of 2.2% for the last four quarters.

Data source: Apple quarterly SEC filings. Table by author.

If Apple's revenue in its first fiscal quarter of 2018 proves to be 2.2% higher than the midpoint of its guidance range, this would be about $87.4 billion, up an impressive $9 billion from the revenue in the first fiscal quarter of 2017.

Considering both Apple's first-quarter guidance range and management's typically conservative outlook, the iPhone maker looks poised to obliterate its previous quarterly revenue record of $78.4 billion.

10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.