Will Ted Lasso Save Apple’s Holiday?
Apple Warns that December Quarter Will “Decelerate” from September.
During the Apple September 2022 quarter earnings call on October 27, 2022, Luca Maestri, the CFO of Apple, warned that “total company year-over-year revenue performance will decelerate during the December quarter as compared to the September quarter for a number of reasons.” Foreign exchange is predicted to negatively impact revenue by 10 percentage points, and “Mac revenue [is expected] to decline substantially year over year,” largely due to a robust comparison with the 2021 holiday season.
Holiday spending on electronics is predicted to be softer this year, down to 24% of consumers wanting a tech gift, compared to 27% in 2020. This could be another headwind for Apple.
What Would Decelerating Look Like?
The September quarter posted 8% year-over-year revenue gains of $90.1 billion. Most of the revenue came from the iPhone, at $42.6 billion, with Services in second ($19.2 billion), followed by Mac ($11.5 billion), Wearables ($9.65 billion), and then iPad ($7.2 billion).
If the December quarter’s year-over-year revenue growth slows to 5%, the holiday sales quarter would come in at $130.2 billion. That would still be an all-time high. Apple would sing that song, accompanied by the analysts. Apple buybacks would continue. A Santa Rally could be in the cards, if investors don’t get too spooked by the November and December rate hikes, and the recession on the horizon.
However, it’s important to remember that decelerate is a rather nebulous word. Apple isn’t offering guidance per se, and that the CFO mentioned twice that there would be a 10 percentage point headwind on FX. By comparison, the FX effect in the September quarter was 70 basis points – less than 1%.
It was clear on the call that most analysts are expecting growth, even if it is low single digits. So, even a small amount of growth should appease Wall Street, when it’s reported around January 27, 2023. The problem is that if Apple knows that its holiday season is a miss on expectations, the company may stop their share repurchases – likely in December. It wouldn’t be the first time that Apple projected low single-digit growth, and then missed.
The Holiday Slowdown in 2018
On January 29, 2019, Apple reported that their 2018 holiday sales quarter had declined by -5% from the December quarter of 2017. That had a lot to do with Huawei, which had jumped to the 2nd most popular smart phone in the world. It was a miss on expectations. However, the sell-off began in early December, almost two months before the announcement.
Throughout 2018, Apple had a robust buyback plan in play of $19.3 billion to $22.9 billion each quarter. In the December quarter of 2018, share repurchases dropped by half to $10.1 billion (source: S&P Dow Jones Indices), with almost no buybacks in December of 2018. When Apple stopped buying, Wall Street saw the worst December since the Great Depression. The S&P500 dropped -9.2%.
Apple repurchased $25.2 billion of their common stock in the September 2022 quarter. If they slow or cease buybacks in December, the markets will drop.
According to Luca Maestri, “We expect Mac revenue to decline substantially year over year during the December quarter.” Mac sales were stronger in the September 2022 quarter than they were in the 2021 holiday season, at $11.5 billion, compared to $10.4 billion. There might have been more back-to-school Mac buying than there will be wrapped gifts under the tree.
Will the iPhone, iPad, Wearables and Services make up for the expected decline in Mac sales? Will Ted Lasso be released in time to save the day? There is no official release date for the popular, Emmy-Award winning series. Filming began in March. On Halloween, Twitter lit up with images of the crew all dressed up as Ted Lasso for filming in Richmond. Was it a wrap? Can the post production team get everything in the can for a drop before December 31, 2022 (when the December quarter ends for Apple)?
14 Weeks Compared to 13
There is one bright spot that could help the company meet expectations. Apple will have an extra week of earnings in the December quarter this year – comparing 14 weeks in 2022 to 13 weeks in 2021. Of course, a miss on earnings will resonate even more with analysts, if it happens.
The Federal Reserve Board is widely expected to increase interest rates another 75 basis points on November 2, 2022, with the Fed Fund rate hitting as high as 4.4% in 2022, and 4.6% in 2023 (according to the FOMC Summary of Economic Projections from September 21, 2022). With inflation still running way too hot, particularly shelter inflation (rents), it’s possible that the SEP will show higher rate hikes in 2023. (I’ve heard Paul Voelker’s name mentioned more in 2022 than in my entire career.) We’ll get the next look at their crystal ball on Dec. 14, 2022.
Rapid rate hikes are correlated with recessions. As I’ve mentioned repeatedly throughout the year, the NBER (the organization tasked with calling the recession) is notoriously slow. If you wait for the headlines that we are in a recession, it will be too late to protect your wealth. It’s a good idea to adopt a time-proven, 21st Century plan now – to fix the roof while the sun is still shining. Join us for our online New Year, New You Retreat Jan. 20-22, 2023. Email info@NataliePace.com or call 310-430-2397 to learn more and register now. Register by Nov. 13, 2022 to receive the best price.
Will there be a Santa Rally in 2022? Or will we see a repeat of December 2018, when Apple knew they were going to miss earnings expectations, stopped buybacks and sparked a Wall Street sell-off to the tune of -9.2%? Does the fate of our holiday season lie in the hands of the Federal Reserve Board or Jason Sudeikis? (There is likely to be plenty of pressure on the Ted Lasso team to drop the 3rd season before Christmas.)
Either way, now is the perfect time to have a recession-proof plan that protects your wealth, while still allowing you to stay in the game. September plunged -9.34%. October recovered some of those losses with 8% gains. Stocks are still down -20% from their January highs. However, with rate hikes and a continued economic slowdown are on the horizon, it’s a better idea to plan for continued challenges than to hope for an unlikely recovery. 21st Century recessions tend to be a series of unfortunate events, with plunges, followed by lackluster rallies and then more drops. When the NBER finally names the recession, stocks are closer to the bottom. If you sell then, you’re likely to be selling low.
The Buy & Hope price tag can be losses of half or more of your wealth in most 21st Century recessions. Wisdom and time-proven systems are the cure. The time is now.
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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.