Apple Earnings and Revenue Higher Than Consensus, All Time High Services Income

Consumer electronics giant Apple reported better than expected EPS and revenue for the fiscal second quarter ended March 31 Thursday. Apple posted quarterly revenue of $94.8 billion, down 3% year-over-year and earnings-per-share came in at $1.52, unchanged year-over-year. Both ahead of analysts who were anticipating revenue of $92.96 billion and earnings-per-share of $1.43. Apple’s biggest driver of revenue, the iPhone, posted a quarterly record. Services posted a new all-time high revenue. Excitement is building for the launch of Apple’s AR/VR headset as a new product category for Apple.

AAPL authorized an additional $90 billion for share repurchases and raised their quarterly dividend for the eleventh year in a row.

Apple (NASDAQ: $AAPL) Reported Earnings After Close Thursday

Apple Fiscal Q2 23 Earnings

Recall last quarter saw Apple’s first year-over-year quarterly revenue decline since 2019, and the biggest annual quarterly revenue drop since September 2016. 

Highlights

• EPS: $1.52 vs. $1.43 estimated, down 3.0% year-over-year
• Revenue: $94.8 billion vs. $92.96 billion estimated, fell 2.5% from last year
• iPhone: $51.33 billion ($48.84 billion estimated)
• Mac: $7.17 billion ($7.80 billion estimated)
• iPad: $6.67 billion ($6.69 billion estimated)
• Wearables, Home, and Accessories: $8.76 billion ($8.43 billion estimated)
• Services: $20.91 billion ($20.97 billion estimated)

“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high,” said Tim Cook, Apple’s CEO. “We continue to invest for the long term and lead with our values, including making major progress toward building carbon neutral products and supply chains by 2030.”

AAPL Stock Market Reaction

• $173.57▲ +7.78 (+4.69%) May 5, 2023 · Market Close
• $173.57 ▲ +16.29 (+10.36%) past year
• $173.57▲ +126.42 (+268.14%) past 5 years
• 52wk High 176.15 ($178.58 ATH)
• 52wk Low $124.17

iPhone Sales

Apple set a March quarterly record for iPhone revenue.

“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment,” said CEO Tim Cook.

Apple iPhone revenues rose 1.7% from last year to $51.33 billion, linked in part to the sale of high-end iPhone Pro models that were held-up over the holiday period. China sales, however fell 2.9% to $17.81 billion amid an uneven post-Covid recovery.

Mac

Sales of Mac computers as expected were soft. Mac sales fell 31% from last year to $7.17 billion. It should be noted that Mac was lapping a very difficult compare last year which included the incredibly successful rollout of its M1 chips throughout its Mac lineup.

Sales of iPad tablets, Mac computers and wearables have been affected by supply constraints. Apple is now over one year into its transition to Apple silicon, and already the vast majority of Mac sales are from M1-powered devices.

iPad

Apple’s iPad has been hampered by supply issues, iPad sales were down 13% to $6.67 billion. iPad revenue was hampered by macro and FX challenges as well as lapping the M1-powered iPad Air last year.

For perspective iPad is by far Apple’s smallest category at 6% of total sales whereas iPhone, meanwhile, accounts for 58% of sales.

Services

The business includes several different lines, including Apple’s online services like Apple Music and Apple TV+, revenue from the App Store, hardware warranties, and search deals with companies like Google.

Apple’s services business reported revenues rose 5.5% to $20.91 billion.

Last quarter Apple said the company has 935 million paid subscriptions, up from 900 million the quarter before, and that services sales set a record in several markets, including China, Cook said.

Apple management said that cloud services, payments including Apple Pay and Apple Card, and music were strong components of services.

Apple recently increased prices for Apple Music and Apple TV+, but the increases started during the December quarter. Cook said the price increases were “disconnected” from Apple’s services performance.

Other Products: Wearables Home and Accessories

Apple’s Other Products category include wearables, home and accessories division include the Apple Watch, Apple TV, AirPods, Beats headphones and the HomePod.  The segment has been hurt by the challenging macroeconomic environment. 

Wearables sales, which includes the AppleWatch, gained 0.6% to $8.81 billion.

Supply Constraints

Supply chain pressures increased when COVID lockdowns at a production facility in Zhengzhou, China, slowed production of iPhone 14 Pro and Pro Max devices, both premium priced models that would traditionally help drive Apple’s margins higher.

Apple has been one of the few companies upfront about supply constraints, so their impact does not come as a big shock. Mr. Cook had warned in April last year were “slightly less” than what was predicted. Apple had warned in April that Covid-related supply disruptions around Shanghai and silicon shortages would hit the company’s inventory and hinder sales by between $4 billion and $8 billion. Chief Financial Officer Luca Maestri also had warned that foreign-exchange rates and paused sales in Russia following the war in Ukraine would also limit growth.

Apple suppliers including like SWKS, QRVO, CRUS, AVGO, TSM, QCOM, SMH, LPL, LITE, FNSR, and IIVI. We watch in these companies’ outlook when they report.

Buybacks and Dividends

Authorized an additional $90 billion for share repurchases. The company said it would increase its dividend by 4% to 24 cents a share. It will be payable on May 18 to shareholders of record at the close of business on May 15.

“Our year-over-year business performance improved compared to the December quarter, and we generated strong operating cash flow of $28.6 billion while returning over $23 billion to shareholders during the quarter,” said Luca Maestri, Apple’s CFO. “Given our confidence in Apple’s future and the value we see in our stock, our Board has authorized an additional $90 billion for share repurchases. We are also raising our quarterly dividend for the eleventh year in a row.”

Apple CFO Luca Maestri echoed Cook

Outlook

Apple did not provide guidance for the current quarter ending in June. It hasn’t provided guidance since 2020, at first citing uncertainty caused by the pandemic.

During the company’s earnings call, Chief Financial Officer Luca Maestri said the company expects its June quarter revenue growth to be similar to its March performance, which saw revenue fall 3%.

CEO Tim Cook said. “We continue to invest for the long term and lead with our values, including making major progress toward building carbon neutral products and supply chains by 2030.”

India was described as an “incredibly exciting market” and a major focus for Apple. It just launched its first two Apple stores there, one in Mumbai and one in Delhi. CEO Tim Cook visited and saw a lot of excitement firsthand. T With India’s growing middle-class Apple feels that India is at a tipping point.

Apple is said to be preparing to enter the AR/VR space with its own headset that will likely launch sometime in 2023. That could serve as the next major product for the company and open up broader opportunities for services and content sales.

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Analyst Reactions

Bernstein Analyst Toni Sacconaghi

Noted the company’s revenue growth was strong in emerging markets but relatively weak in the U.S. and the Americas.

Apple’s third-quarter revenue guidance appears conservative, according to Sacconaghi. Said below-seasonal growth was due to unusual iPhone channel inventory replenishment in the second quarter and iPhone push-out from the first quarter into the second quarter, rather than an indication of slowing demand. Sacconaghi had expected modest downward revisions from consensus to FY23 estimates, he believed double-digit services growth was achievable in the next few years, despite more muted growth for advertising and the App Store.

Apple’s second-quarter revenues were $94.8 billion, down 3% year-over-year but 3% above the firm’s estimate. The company’s services revenue reached an all-time high at $20.9 billion, up 5% year-over-year, while products revenue was $73.9 billion, down 5% year-over-year due to lower Mac and iPad revenue.

BofA Analyst Wamsi Mohan

Reiterated his Neutral rating and set a price target of $176.

Mohan praised the company’s execution and iPhone sales growth, though he expressed concerns about the lack of a major catalyst to drive higher demand, a potential iPhone mix reversion and weaker Services growth in the near term.

Oppenheimer Analyst Martin Yang

Provided an overview of Apple’s supply chain derivatives, noting that the company’s iPhone sales growth was a positive sign for suppliers including Qualcomm Inc (QCOM), Qorvo Inc (QRVO), Broadcom Inc (AVGO), and Cirrus Logic, Inc. (CRUS). He added that Apple’s revenue mix was not as strong for its Mac and iPad segments.

Raymond James Analyst Srini Pajjuri

Reiterated his Outperform rating and raised his price target from $170 to $180.

Pajjuri cited Apple’s solid earnings results despite a weak macro environment and foreign exchange headwinds, as well as the potential for relative stability in the company’s revenue growth due to share gains in emerging markets and China reopening.

KeyBanc Analyst Brandon Nispel

Maintained an Overweight rating and raised his price target to $180.

Nispel highlighted strong iPhone sales growth in emerging markets and the ability to weather macroeconomic headwinds. He noted Apple’s revenue guidance was below consensus but in line with buy-side expectations and that the company’s cost controls provided reasons to be optimistic.

Needham Capital Markets Analyst

Needham raised its price target on Apple to $195 and maintained its Buy rating.

The firm highlighted Apple’s installed base of more than 2 billion active devices, which drove nearly 2% year-over-year revenue growth and $28.6 billion of operating cash flow in the second quarter. Needham saw Apple as a safe investment option for investors amid an uncertain macro and consumer demand landscape.

Source: Apple, AlphaStreet, Apple Insider

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