Apple Q2 Results In: Services Expand to $11.5 Billion

Apple’s announcement on April 30th of its fiscal results show strong service revenue income

While the company’s quarterly revenue at $58 billion was down by 5 percent from a year ago, service income is up significantly and growing. 61 percent of Apple’s Q2 earnings came from international sales. The full investor call is available for listening at www.apple.com/investor/earnings-call/ for up to two weeks. Apple has an installed base of over 1.4 billion active devices. View consolidated statements on Apple.com.

“We generated operating cash flow of $11.2 billion in the March quarter and continued to make significant investments in all areas of our business. We also returned over $27 billion to shareholders through share repurchases and dividends. Given our confidence in Apple’s future and the value we see in our stock, our Board has authorized an additional $75 billion for share repurchases. We are also raising our quarterly dividend for the seventh time in less than seven years.”

— Luca Maestri, CFO, Apple

Apple’s board of directors declared a cash dividend of $0.77 per share of the Company’s common stock, up by five percent, payable on May 16, 2019 to shareholders by the close of business on May 13, 2019.

Apple offers the following information about its fiscal 2019 third quarter:

revenue between $52.5 billion and $54.5 billion
gross margin between 37 percent and 38 percent
operating expenses between $8.7 billion and $8.8 billion
other income/(expense) of $250 million
tax rate of approximately 16.5 percent

More information is available on Apple’s website.

Apple Reported $84.3 B Earnings for 2018 Holiday Quarter, with Lowered iPhone Sales

While iPhone Revenue Took a 15 Percent Hit, Apple’s Active User Base Increases to 1.4 B devices and Service Revenue is Booming

Last week, Apple reported its financial results for the 2018 holiday season and last quarter, ending in December. While the company warned that the earnings would be less due to declining iPhone sales of 15 percent less, Apple nonetheless posted its second-best earnings and revenue in history.

Highlights include:

• Revenue $84.3 billion (of which $52 billion was from iPhone sales).
• Earnings per share (EPS) increase to $4.18.
• Services revenue continues to grow, up to $10.9 billion.
• 1.4 billion active devices installed by users by end of quarter.
• Apple Music has over 50 million paying subscribers.
• App Store sets new single-day record with $322 million processed on New Year’s Day.
• 1.8 billion Apple Pay transactions in last quarter (up more than 2 times the year prior).
• Apple Pay coming to Target, Taco Bell and Jack in the Box stores (now available).
• Apple News has over 85 million monthly active users in US, UK, and Australia, setting new record.
• Apple News is launching in Canada in English and French this quarter.
• Apple has 360 million paid subscriptions across its services.
• Apple expects to surpass 500 million paid subscribers across its services in 2020.
• Apple remains on track to double its fiscal 2016 services revenue by 2020.
• Gross margin was 34.3% for hardware products and 62.8% for services.
• Apple ended the quarter with $245 billion in cash plus marketable securities.
• Apple’s wearables revenue is driven by Apple Watch and AirPods. Wearables category is "approaching the size of a Fortune 200 company."
• iPhone XR is best selling iPhone model, followed by iPhone XS Max and then iPhone XS.

During the call, Apple CEO Tim Cook said, “I do think price is a factor” in declining iPhone upgrades as users are more likely to hold on to their devices now for longer periods of time. To address pricing concerns abroad as a strong U.S. dollar has made newer models out of reach for many consumers abroad, Apple is offering a different pricing model for consumers in certain countries. While the earnings were less than last year’s with an earnings per share of $3.89, the newest earnings report did show an increase in earnings per share to $4.18. Thus, the figures reveal a year-on-year decline of 5 percent on revenue with an increase of 7.5 percent on earnings per share.

Services revenue continues to grow, up to $10.9 billion, up 19 percent from the year before. Mac revenue hit an all-time high of $7.4 billion, growing 9 percent year-over-year, while the "wearables, home and accessories" category reached $7.3 billion, up 33 percent from 2018. Revenue from iPad also grew to $6.7 billion in the first quarter, up 17 percent year-over-year.

Interestingly enough, Apple's new "Wearables, Home and Accessories" segment, now pulls in more revenue than Apple's iPad business and will soon surpass the Mac. This new segment formerly called “Other Products” includes the Apple Watch, AirPods, HomePod, Apple TV, Beats, iPod touch and other accessories.

“While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide. Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments. That’s a great testament to the satisfaction and loyalty of our customers, and it’s driving our Services business to new records thanks to our large and fast-growing ecosystem.”

— Tim Cook, Apple CEO

Apple had taken the unusual step to warn investors about the expected loss of revenue on January 2nd, predicting quite accurately, expected revenue of $84 billion instead of the previously anticipated $89-$93 billion figures laid out in November of 2018. The stock had taken a beating as a result. Nonetheless, right before Apple’s announcement of its actual earnings report, consensus on Wall Street from Morgan Stanley to Macquarie Research, JP Morgan, TF Industries, Alliance Bernstein, UBS, Goldman Sachs, Bank of America, Merrill Lynch, Piper Jaffray, Canaccord Genuity, Loup Ventures and BTIG, was that an earnings per share of around $4.17 could be expected.

This was also the first quarter where Apple’s new policy of no longer providing sales figures for the iPhone, Mac and iPad, is in effect. Apple continues to provide details regarding sales growth, revenue, and guidance, but no longer uses the iPhone or other product unit sales as the predominant indicator of the company’s growth and fiscal success. The company has expected to have multiple offerings such as Services and expected new income via subscriptions such as Apple Music, Apple News and new video content in 2019 and beyond. Apple will provide an update on its capital return program in March earnings report.

“Three things stand out long term: loyal and satisfied customers, large and growing active installed base, and deeply engrained culture of innovation. ”

— Tim Cook, Apple CEO

For the first fiscal quarter of 2019, Apple predicts revenue of $55-$59 billion with a gross margin of 37-38 percent and operating expenses of $8.5-$8.6 billion and a tax rate of 17 percent. Download consolidated statements here.

Live streaming of Apple’s investor call is available at www.apple.com/investor/earnings-call/ for approximately two weeks after the announcement on January 29th.

Apple Has Record-Breaking September Quarter with $62.9 Billion in Revenue

Apple reported $62.9 billion earlier this month, with $37.2 billion in revenue from the sales of 46.9 million iPhones

Image via Apple

“We’re thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple’s history,”

— Tim Cook, Apple CEO

Apple’s sales results beat records and forecasts for the past three-month period for the last quarter of 2018, the highest growth rate in three years with earnings-per-share of $2.91 growing per year. All-time quarterly records were made with $62.9 billion is a year-on-year increase from $52.6 billion last year. Apple shipped out 46.9 million iPhones during the September quarter, with revenue up to $37.2 billion, increasing year after year.

The average selling price or ASP of the iPhone is $793, going up from the $617.99 ASP from just one year ago in 2017. Premium pricing for the Phone X, iPhone XS, and iPhone XS Max has been driving the ASP increase. Analysts estimate that Apple would sell 47.5 million iPhones in the fourth quarter within the range of 46.7-48.1 million.

Apple provided live streaming for its Q4 2018 financial results conference call on November 1, 2018. The webcast is available for replay for up to two weeks after.

“We concluded a record year with our best September quarter ever, growing double digits in every geographic segment. We set September quarter revenue records for iPhone and Wearables and all-time quarterly records for Services and Mac.”

— Luca Maestri, Apple’s CFO

iPad, Mac and Services Revenue

The iPad raked in $4.1 billion in revenue with 9.7 million units sold, lower than analyst expectations of 10.5 million for the quarter. Mac revenue was $7.4 billion, higher than a year ago. Apple services has grown to $10 billion, up from $8.5 billion in 2017 for the same quarter. The Services arm keeps growing fast with analysts expecting ongoing growth in the future.

Consolidated Financial Statements

Data Summary

Changes in Reporting for 2019

Apple surprised many when the company also announced that they would no longer be reporting iPhone, iPad and Mac unit sales in earnings reports. This surprised many analysts given that this data was used as an indicator of growth and ASP calculations. However, the decision makes sense when iPhone sales are slowing down, while ASPs keep going up.

Apple will report revenue, sales growth, and guidance as before. However, given that a unit of sale is very different today than it was eleven years ago, sales of Apple products do not represent completely the product’s business health.

“A unit of sale is less relevant today than it was in our past.”

— Luca Maestri, Apple CFO

Pricing varies by a larger range today such as the iPhone ranging from $449 (iPhone 7) to $1,449 (iPhone XS). Maestri also pointed out that segment competitors do not provide unit sales.

For First Quarter of 2019

Analysts expect the first quarter of 2019 to also best records, with Apple predicting revenues of $89-$93 billion with gross margin between 38-38.5 percent. Operating expenses are expected at $8.7-$8.8 billion, while a tax rate of approximately 16.5 percent is expected.