New iPhone8 super cycle, the driving force, while service segment outperformed

Apple Inc (NASDAQ: AAPL)  has the whopping 69% of revenues coming from iPhone. In the recent reported quarter, services accounted for a strong 12% of total revenues and Mac contributed 11% share of total Apple revenue. Services revenues grew 18% YoY $7.2 billion and expected to continue the momentum. Its App Store revenue, apart of services segment was up 43% YoY and management has forecasted annual services revenue to double over the next four years to $50 billion in 2020. Moreover, its launch of Apple Watch has also seen growth over few years since its launch in 2014.

Apple announced new higher storage versions of the iPhone Se and iPhone 7 and 7Plus, The phone will have a red aluminum finish option, through the company’s partnership with “RED” and will cost $749. The company has also announced a new 9.7-inch iPad with improvement in performance and a retina display but has introduced at the lower price point of $329 compared to its last version at $599, probably focusing on volume gain.

Apple TV is in its fourth generation and basis for providing access to various ways of presenting video programming. This would continue to enhance company’s revenues.

What Next?

Going forward, the company would announce its March quarter results and guide for June quarter. Apple has guided revenues of $51.5 -$53.5 billion and gross margin of 38% to 39% for March quarter. The company expects operating expenses between $6.5 billion and $6.6 billion and other income of $400 million with effective tax rate of 26%. The positive surprise from results would aid the stock rally.  Further any positive announcement on tax reforms or repatriation benefits will enhance investor’s confidence as well as potential dividend raise. The company has ~$246.1 billion in cash, cash equivalent and marketable security and the majority of them are in overseas.

In a recent research note, Cowen has raised Apple Inc’s price target to $155 from its earlier price target of $135 on the back of expected launch of the iPhone 8.  The research house expects total units sales of 110 million for 2017 from iPhone 7, iPhone 7 plus an iPhone8. It is said that iPhone8 will probably be the only one of this year’s three new models to feature facial and gesture recognition.

Apple Inc’s stock was up 20.3% in the last three months.