One factor is the 47% increase in traffic acquisition costs that Google just reported.
From a note to clients by analyst Robert Cihra that landed in my inbox Monday:
Apple reports on July 31 and we continue to estimate Jun-qtr iPhone units +4%Y/Y to 43mil and ASP +14%Y/Y, driving iPhone revs +19%Y/Y to keep Apple tracking to its best iPhone revenue growth since FY15.
We expect solely focusing on supply-chain inputs to have under-stated iPhone sales for a second consecutive qtr, as inventories still needed to be burned down from 2H17’s over-build but estimate that Apple’s sell-through was +3%Y/Y and have now started seeing some supply chain reacceleration in 2H18E.
Investors have not seemed overly impressed with iPhone X uptake to date but we think they ought to be much MORE impressed by Apple’s ability to raise ASP double-digits without impacting unit share in an otherwise no-growth smartphone market, illustrating the power of its high-end demographic and peel-off-the-top model.
We expect another strong quarter in Apple SERVICES (+28%Y/Y to $9.3B), boosted in part by Google’s own report that its Traffic Acquisition Costs (TAC) paid to distributors grew another +47%Y/Y (e.g., slower than last qtr’s +61%Y/Y peak but still a premium growth contributor to Apple and ahead of our estimated Licensing +38%Y/Y)… [We estimate] licensing at 15% of Services mix but with payments from Google for search in iOS/Safari alone accounting for ~75% of that; getting a toll we presume Google is more than happy to pay as its COGS of being able to monetize Apple’s high-end mobile user demographic. [emphases mine]
Reiterates Buy rating and raises price target to $225 from $215.
My take: The bulls are feeling frisky.