Investors got a rare treat Tuesday: 35 minutes with CFO Luca Maestri.
You can listen to his remarks at the 2017 Goldman Sachs Technology and Internet Conference here. Below: Excepts from the analysts’ commentary we’ve seen, new notes on top.
Steven Milunovich, UBS: Installed base supports growth, gross profit dollars the focus. Luca Maestri said he sees growth for the iPhone given its increasing relevance and opportunity in emerging markets. Loyalty, satisfaction, and engagement remain encouraging. He defended China, pointing out that the ecosystem is strong there with services revenue doubling last year. In content, he indicated that exclusives boost transactions and free trials. However, he didn’t bite regarding an increased willingness to make large acquisitions. Stock buyback appears to be the top priority for repatriated cash. He pointed out that while Apple has kept the gross margin in the 38-40% range with services offsetting a declining iPhone margin, gross profit dollars are most important. We think trading off margin for growth may increase the P/E multiple. Buy. $138.
Neil Cybart, Above Avalon: Apple CFO’s Fireside Chat at Goldman Sachs. Apple’s gross margin has been in the 38 percent to 40 percent range over the past five years. Every time Apple launches a new product, the cost structure is higher versus the product it replaces because new technologies and features are needed. Apple offsets this pressure by being able to take those cost structures down over time across the product’s life cycle. Apple also uses pricing to offset cost pressures. In addition, the Services business mitigates some of the hardware margin pressure. The Services business, as a whole, is margin accretive. This means Services has an overall margin more like 50%+. Apple strives to optimize gross margin dollars, not just gross margin percentages. While not too surprising, that is a very interesting statement from Luca. He is basically saying that Apple does care about market share to a certain extent. We can look at Apple’s iPhone SE strategy as a perfect example of this in action. Apple works on bringing iPhone pricing down over time (to increase sales), while margins remain relatively unchanged.
Walter Price Allianz Global Technology: Apple and the border tax. Apple’s in the same boat as every other cellphone company. If you put a tariff on Apple phones that are brought into the country, that tariff will apply to every other phone, so it doesn’t really change their competitive position. We think the right valuation is something like 15 to 17 times earnings, a slight discount to the market multiple. That gives us a price target of somewhere between $150 to $180 a share.