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Consumer electronics giant Apple reported better than expected June financial results on Tuesday after the market close. Negative sentiment had swirled around Tech since $NFLX, $FB and $TWTR crashed 20% or so.  $AAPL delivered on China and excitement for NEXT iPhone.

IPhone 8

Apple June Quarter Earnings Review

Apple Inc. (Nasdaq: $AAPL) Beat Forecasts After Close Tuesday

$2.34 beat $2.16 EPS and $53.30 billion beat $52.34 billion forecast in revenue 

Earnings

Apple reported earnings of $2.34 per share, riding on a revenue hike of 17% to $53.3 billion. Earnings for the third quarter improved 40%, surpassing analysts’ expectation of $2.18 per share. Revenue also beat Wall Street expectations, which was projected to be around $52.34 billion.

Apple Inc. NASDAQ: $AAPL

Market Reaction > After hours 197.95 +7.66 (+4.03%)

“We’re thrilled to report Apple’s best June quarter ever, and our fourth consecutive quarter of double-digit revenue growth.” “Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline,” CEO Tim Cook said. 

Segment Highlights

iPhone

  • iPhone sales for the quarter of 41.3 million units with revenue up 20% year on year, but units were slightly below the consensus of 41.8 million units. However as mentioned in the preview was expected and the factor here was the new phone and ASP. 
  • iPhone ASP growth, driven by iPhone X, 8 and 8-Plus increasing to $724 from $606 a year ago 
  • iPhone grew faster than the global smartphone market gaining share in many markets including the US, Greater China, Canada, Germany, etc. Double-digit growth in iPhone active installed base
  • Seventh consecutive quarter of accelerated revenue growth

iPad and Mac

  • Revenue from both iPad and Mac declined 5% during the quarter
  • iPad unit sales grew for the fifth consecutive quarter;
  • Apple gained a significant share of the global tablet market based on the latest estimate from IDC.

Services

  • Apple’s services business saw a 31% increase in revenue to $9.5 billion.
  • In the prior sequential quarter, Services, which includes App Store, Apple Music and iCloud,reported a 31% gain.
  • Services revenue included a favorable $236 million one-time item related to the final resolution of various lawsuits
  • Apple Pay continues to expand, with well over 1 billion transactions
  • Number of articles read on Apple news more than doubled year-over-year
  • Apple music grew by over 50% year-over-year pple
  • Apple Music has got more than 50 million listeners; includes paid and trial subscribers
  • Developers have earned over $100 billion from the App Store since its launch
  • Based on third-party research estimate, the app store generated nearly twice the revenue of Google Play so far in 2018
  • On target to reach the goal of doubling fiscal 2016 Services revenue by 2020

Other Products

  • Revenue from Other Products  soared 37% in the third quarter to $3.7 billion.
  • Smart home business is bigger than HomePod and Apple TV.
  • Wearables revenue exceeded $10 billion over the last four quarters

 

AAPL Earnings Q2 18Source: AlphaStreet

China

  • In China; iPhone, iPad, Services, Other Products all saw double-digit growth.
  • Recently-imposed tariffs on Chinese goods don’t cover Apple products.
  • Apple is evaluating fourth tariff proposal covering about $200 billion worth of imports
  • Apple revealed that its revenue from Greater China improved 19% to $9.5 billion during the third quarter,  this overcomes the rumors that  that low-priced local players would eat into its market share.

Debt and Cash

Debt retired $6 billion; net cash balance $129 billion

Outlook

  • For the fourth quarter of 2018, Apple expects revenue between $60 billion and $62 billion and gross margin of 38-38.5%. AAPL forecasts operating expenses of $7.95 billion to $8.05 billion during this period.
  • Apple said on iPhone ASP outlook the company doesn’t provide unit or ASP guidance;
  • September quarter revenue growth is expected to come from iPhone, services and wearables
  • Apple Music has got more than 50 million listeners; includes paid and trial subscribers 

 

Apple June Quarter Earnings Preview

What to Look for in Earnings

Apple reports Fiscal Q3 earnings on Tuesday, July 31 after the market close. According to FactSet, analysts are looking for earnings of $2.16 a share. The big mover however will be what $AAPL says about the next iPhone, analysts will be looking for any clues from CEO Tim Cook. The September quarter also usually includes the first week or two of new iPhone sales.

The iPhone 8 and iPhone 8 Plus were introduced in September 2017. Apple customers are a mix of "cultists" you want the latest and greatest and the price conference who plan to buy the older models at lower prices. When Apple introduces a new iPhone, it cuts the prices of its previous models.

Toni Sacconaghi, an analyst with Sanford C. Bernstein said "Investor focus has shifted to iPhone demand in FY19 with the next generation iPhones."

Apple's biggest earner is still the iPhone, in the second quarter, it sold 52.2 million iPhones, which accounted for 62 percent of sales. (Services, Macs and iPads and "other products" like AirPods contributed to the rest of revenue).

Last quarter the iPhone X was the best-selling device every week of the quarter, even though it was the most expensive phone Apple's ever made. It starts at $999, $300 more than the iPhone 8 and $200 more than the iPhone 8 Plus. With the iPhone X, Apple redesigned the iPhone for the first time in three years, getting rid of the home button to expand the touchscreen and adding new FaceID technology. (Big Brother at work we see)

For the third quarter analysts estimate Apple sold 41.8 million iPhones, according to Sacconaghi. That's compared to 41.03 million in the same quarter in 2017. Sales are projected to be $52.3 billion, up 15 percent from a year ago, according to Zacks.

Back to the new phones, Apple is expected to introduce three new iPhones in September, talk of a phone larger than the iPhone X and another that's much less expensive. The iPhone is now a stable business, rather than the outside growth driver.

With so many iPhones out there, Apple's services business such as the App Store, Apple Music and iCloud is the outside surprise now,  In the second quarter, Apple's services revenue rose 31 percent to $9.19 billion while iPhone unit sales rose just 2.8 percent.

"We have the best pipeline of products and services we've ever had," Cook said during Apple's second quarter earnings call on May 1.

The earnings will bring FAANG's earnings for another quarter. Investors will be looking for more Alphabet than Facebook and Netflix.

 

Apple March Quarter Earnings Recap

iPhone Sales Miss in Units But Revenues Soar

Apple Inc NASDAQ: $AAPL

  • After hours 175.82 +6.72 (3.97%)

Earnings Beat Consensus Expectations

Earnings per share of $2.73 beat expected $2.67, adjusted, expected by Thomson Reuters consensus estimate. Revenue of $61.1 billion beat $60.82 billion expected by Thomson Reuters consensus. $AAPL’s disappointing sales of the iPhone 8 and iPhone X coupled with weak results from Apple supplier TSMC in the first quarter had turned investors negative into Apple's latest results. $AAPL’s share price has fallen eight per cent over the last week, slicing over $60bn from its valuation.

Highlights

  • iPhone unit sales: 52.2 million vs. 52.54 million expected by a StreetAccount estimate
  • iPhone's generated revenues of $38 billion, up 14%\
  • iPad reported 9.11 million units sold, an increase of 2%.
  • iPad revenues increased 6% to $4.11 billion.
  • Mac sold 4.08 million units, a decrease of 3% from last year.
  • Mac revenues remained flat at $5.85 billion.
  • Services revenues increased 31% to $9.19 billion.
  • Other Products revenues increased 38% to $3.95 billion.

 

Share Buybacks and Dividends

Apple has steadily increased its dividends since its 2014 stock split. Apple said last quarter it had returned $248.4 billion in total capital to shareholders, and anticipated that figure would hit $300 billion in through March 2019.

Outlook

Fiscal Q3 revenue guidance: $51.5 billion to $53.5 billion vs. $51.61 billion expected by Thomson Reuters consensus

The high price tags of iPhones and only evolutionary incremental functionality  has seen phone replacement cycles lengthen. How much have the news flow of weakening smartphone sales, especially for its flagship iPhone X been built in? Analysts were expecting Apple to guide lower for the June quarter. $AAPL will launch its 12th-generation iPhones in September.

It's not all about iPhones, and even so  gross margins to remain relatively flat at around 38 per cent. Apple has seen soaring revenues from service and also sees benefits from recent U.S. tax cuts. The tax rate drops from 22 per cent last year to just 15 per cent this year. These changes will lessen the firm’s reliance on the iPhone. 

Cook said in January, Apple achieved an installed base of 1.3 billion devices, and "That's an increase of 30% in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers" .

In 2017 Apple outperformed since the Donald Trump Election victory there has been a run higher on Apple, this in turn has helped fuel the run in the S&P 500, Nasdaq and Dow Jones Index to Record highs.

How Much Will Component Cost Rises Effect Profit Margins

For the same reason we have seen NVidia, Intel, Micron and ADM Micro shares surge it is not good news for Apple,  it affects their margins.  The chip stocks have benefited from the demand for DRAM and NAND chips. Demand from Gaming and digital currencies have added to already strong demand from smartphones and cloud computing.

Source: Apple, TradersCommunity, AlphaStreet

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