AAPL will post its first $100 billion quarter to end the 2020 calendar year, which is its fiscal first quarter of 2021.
Apple is set to post its first $100 billion revenue quarter when it reports its calendar Q4 / fiscal Q1 earnings in late January. The company has been honing in on this milestone as it reported $91.8 billion in revenue during its last holiday quarter. Even in light of COVID-19, the company continues to grow top-line revenue in large part due to its continued growth in its Services and Wearables segments. Apple has been hovering around a $100 billion quarter with last year’s holiday quarter coming in at $91.8 billion.
Here are the tailwinds that I foresee driving Apple’s $100 billion 2020 Holiday Quarter:
iPhone 12 launch deferral: Ever since the launch of the iPhone 4S in Sept-2011, Apple has maintained a cadence of launching its latest iPhone during the tail-end of September, which falls into calendar Q3, which is Apple’s fiscal Q1. This year, all of the iPhone 12 models were not launched until October, meaning that all iPhone 12 launch revenue will fall into the holiday quarter. Additionally, a number of analysts have commented on 5G driving a super-cycle for the iPhone installed base who have not had a great reason to upgrade in the past few years. It is also important to keep in mind that the launch weekend for an iPhone produces a disproportionate amount of unit sales and revenue, so pushing that launch into the December quarter is significant and cannot be analyzed on a linear sales cadence basis.
Apple Watch entry prices: Apple launched its latest flagship Apple Watch (Series 6) on time, but that’s not what I’m looking at in terms of tailwinds. The $199 and $279 entry price-points for the Apple Watch Series 3 and Apple Watch SE, respectively will provide an excellent price point for holiday gifting.
Apple Silicon Macs: If there was ever skepticism about Apple’s ability to produce a quality Mac with true differentiation using its old silicon, it is gone. The new Macs with Apple’s own M1 SOC has produced universal positive reviews due to its speed, integration and efficiency with the MacBook Air’s getting an average of 15 hours of ‘real use’. Even with the Mac having a blowout quarter in the September quarter, the launch of these Apple Silicon Macs will drive another strong quarter for the Mac lineup.
iPad Air 4: The iPad Air 4 specs are amazing and another product that has received universally positive reviews. The iPad has made a nice comeback after a number of stagnant years. I think the momentum that we have seen over the past few quarters will continue in the holiday quarter.
AirPods and AirPods Max: I think AirPods will continue to sell extremely well even with no real change to the product over the past few years. Additionally, with today’s announcement of the AirPods Max, you are going to see another product driving accretive revenue. How that product will sell is anyone’s guess, but I am sure that at a $579 price point, it will generate decent revenue.
As seen below, Apple typically converts about one-third of its holiday quarter revenue to operating cash flow - given a $100+ billion revenue quarter, you can expect them to generate $35 - $40 billion of operating cash flow in this holiday quarter - I continue to argue that Apple’s ability to produce Free Cash Flow is the true undervalued part of its business - the products are great, but it’s the cash conversion that truly makes the fundamentals one-of-a-kind in a world that has places more emphasis on revenue than actual cash.
Source: AAPL SEC Filings
