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In April, Gold Hall Sachs analyst Rod Hall retired from his long-term bearish stance
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shares, elevating its rating to Hold from Sell and admitting that its previous view that iPhone sales would disappoint during the pandemic was “clearly wrong.” He also admitted at the time that Mac and iPad sales had materially exceeded his forecasts.
But Hall still has some concerns about Apple’s outlook (marker: AAPL), as reflected in its $ 140 target price, about $ 10 below the recent price. On the one hand, he believes Street’s estimates for next year are simply too high. Hall projects revenue for the September 2021 fiscal year of $ 371.7 billion, about $ 5 billion above the Street consensus and 35% more than in 2020. But he sees 2022 tax revenue falling 4% to $ 356.5 billion, a projection of $ 23 billion below the Street consensus. to $ 379.5 billion.
Hall provided some insights into this thinking in a new research note Tuesday, with a special focus on Apple’s ability to increase average revenue per user. Hall writes that his broad view of Apple has been that stable revenue per user combined with “maximizing” global user penetration can lead to a slowdown in global revenue growth, a view reflected in its 2022 fiscal forecast.
But he noted that Covid provided multiple boosts to Apple’s ARPU, which it estimates will increase by 21% over the two-year period until the end of 2021. (This reflects its estimate of 19% growth in ARPU in the 2021 calendar , after a growth of 2% in 2020.) The impressive growth comes from both the growing revenue of iPhone, Mac, iPad and Wearables, as well as revenue from strong services, due in part to the accelerated downloads of the App Store.
But he sees this pattern reversing as spending patterns return to normal over time, as the pandemic subsides.
Hall admits that it is difficult to predict the behavior of Apple users in the short term. Covid has created some tough teams for Apple, driven by hardware demand, above-average spending from the App Store and a demonstrated preference for high-end versions of the iPhone and other materials. He also says investors need to take into account the high levels of consumer savings and the increased value of Apple products, as well as more flexible and studio behavior. However, he thinks that, in the long run, Apple will have to increase ARPU or accelerate subscriber growth trends to keep revenue growth above GDP growth.
For the 2022 calendar, Hall sees average revenue per user fall by about 12% year-on-year, largely due to the expected moderation in hardware sales. It expects iPhone revenue to fall 12% in 2022, after 37% growth in 2021, with units down 3% and average selling prices up 9%. He sees that in 2022 revenue will be reduced by 9% for Macs and 8% for iPads. And he sees service revenue growth moderating to 6%, from 24% in 2021, with a recovery in advertising spending that partially offsets difficult App Store comparisons.
Hall also argues that investors would be better off looking at ARPU trends than trying to discern unit volumes, mostly because the company has not provided data on product units since the end of fiscal year 2018. He thinks given the lack of strict data on units “The data sources on which many investors rely to forecast Apple’s revenue over time have become less accurate.”
Shares of Apple fell a few cents on Tuesday to $ 149.63, about $ 2 below the all-time intraday high of $ 151.68.
Write to Eric J. Savitz at [email protected]