Apple Demonstrates Demand Resiliency as Average iPhone Sales Price Jumps

Apple (AAPL) demonstrated better demand than expected, proven by an iPhone average sales price of $724 that was about 5% ahead of forecasts, Goldman Sachs said in a report on Wednesday.

The company reported third-quarter sales of $53.3 billion, up from $45.4 billion during the same timeframe a year earlier and topping consensus compiled by Capital IQ of $52.4 billion. Earnings came in at $2.34 a share, up from $1.67 a year earlier and ahead of estimates for $2.18 a share.

For the fourth quarter, management said it’s targeting revenue from $60 billion to $62 billion, topping expectations for $59.4 billion. Shares were up 4.5% in early trading Wednesday.

Apple sold 41.3 million iPhones in the third quarter, up slightly from a year earlier. Ipad sales were reported at 11.5 million units versus 11.4 million last year, Mac sales came in at 3.7 million versus 4.29 million last year. Services revenue climbed to $9.54 billion from $7.26 billion last year, the company said.

The iPhone average sales price grew 20% year-over-year, with a foreign exchange impact of around $19, making year-over-year growth in constant currency a “healthy” 16%, Goldman said.

“Management said the better trajectory was driven by higher mix of iPhone X, iPhone 8 and iPhone 8 Plus across the world,” the bank’s analysts said. “CFO Luca Maestri noted that as we look into (the fourth quarter), it is important to keep in mind that (third-quarter) ASPs were materially higher implying, in our opinion, that year-over-year growth is likely to remain similar in (the fourth quarter).”

Due to the strong sales numbers, Goldman increased its estimate for high-end Face ID iPhone shipments for the second half of the year to 73 million from a prior outlook for 64 million. It left its total iPhone units forecast mostly unchanged, reflecting supply chain checks that suggest increased Face ID builds and elimination of the iPhone 7.

“We now model that new Face ID iPhones comprised of two OLED versions and an LCD version constitute 70% of total iPhone shipments in (the fiscal first quarter of 2019) versus 60% previously,” the bank said. That figure is is near the top of Apple’s historical mix range for new iPhone models in the December quarter, Goldman said.

Buybacks slowed in the third quarter, registering at $20.8 billion, down from $22.8 billion in the second quarter, for a total of 112.8 million shares.

Goldman wasn’t the only bank taking a look at Apple after its positive earnings report. BMO Capital Markets raised its price target on the company’s stock to $199 a share from $184 per unit, bringing the target above Tuesday’s closing price and more in line with where shares were trading on Wednesday.

In a note to clients, BMO highlighted that this quarterly beat was driven “mostly by better-than-seasonal iPhone [average selling prices] and strength in services.”

The bank’s analysts said they expected more of a hit from price elasticity, but that buyers were still looking for higher-priced devices. The company’s services segments are benefiting from growing subscription businesses and a higher iPhone installed base.

Still, BMO said the maintenance of its investment rating on the stock of market perform came as “we think upside in the shares is limited on relative valuation.”

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