Dow component Apple Inc. (AAPL) is trading lower about 4% in Friday’s pre-market despite beating fourth quarter 2020 top- and bottom-line estimates by small margins. Consolidated revenue rose 1.0% year over year, while the iPhone’s $26.4 billion in revenue missed the mark, more than $2.0 billion under consensus and $7.0 billion less than the same quarter in 2019. The company offered no first quarter guidance but stated that iPhone revenue will “grow” and other categories will grow in “double digits.”

Key Takeaways

  • Apple stock is trading at a six-week low after a “sell-the-news” earnings reaction.
  • iPhone revenues in the fiscal fourth quarter failed to meet expectations.
  • Investors will now turn their attention to the just-released iPhone 12.
  • Political controversy marks a potential 2021 headwind.

The iPhone miss isn’t a big deal because many customers have delayed purchases, waiting to upgrade to the 5G-enabled iPhone 12, which was released on Oct. 23. However, the four-figure price tag complicates sales predictions because it’s more costly than rival smartphones at a time of high unemployment and economic uncertainty. Even so, Apple’s 50% return so far in 2020 is probably the real culprit in the sell-the-news reaction.

Political controversy poses a growing risk for the company and its mega-cap peers, with the Department of Justice recently filing a lawsuit against Alphabet Inc. (GOOGL), alleging an anti-competitive deal with Apple in which Google becomes the exclusive search engine for iPhones and other devices in exchange for billions in annual fees. Although filed by a Republican administration, both parties have raised threats to derail growing big-tech monopolies.

The earnings release hasn’t spawned the usual wave of analyst commentary, but Wall Street was very vocal after the iPhone release event earlier this month. Consensus now translates into a modestly cautious “Moderate Buy” rating based upon 26 “Buy,” 8 “Hold,” and 1 “Sell” recommendation. Price targets currently range from a low of $66.60 to a Street-high $150, while the stock is set to open Thursday’s session about $16 below the median $126.76 target.

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