On Tuesday after the close, Apple reported June quarter (fiscal third quarter) revenue of $53.81 billion (up 1% annually) and GAAP EPS of $2.18 (down 7%), beating a consensus analyst estimate of $53.32 billion and $2.09. The company also guided for September quarter revenue of $61 billion to $64 billion (down 3% to up 2%), above a consensus estimate of $60.9 billion.
Apple's shares, which had also rallied post-earnings in April, jumped in after-hours trading and were up 4.7% to $218.66 on Wednesday morning, putting their market cap at just above $1 trillion. Shares are now up 38% on the year, after having tumbled during the last three months of 2018.
Here are some notable takeaways from Apple's earnings report and call.
1. 'Wearables' Sales Soared
Driving much of the June quarter revenue beat: Apple's Wearables, Home & Accessories segment, which covers all hardware offerings outside of iPhones, iPads and Macs, saw revenue rise 48% annually to $5.53 billion, trouncing a consensus estimate of $4.59 billion. The segment's revenue growth accelerated from the March quarter's 30% and hit the highest levels seen since 2015, the year the original Apple Watch launched.
The Apple Watch and AirPods have been driving this segment's growth for some time. On Apple's earnings call, Tim Cook said Apple's "wearables" revenue, which covers the Apple Watch, AirPods and Beats headphones, grew "well over 50%" annually during the quarter, after having grown close to 50% in the March quarter.
Cook added that over 75% of Apple Watch buyers were first-time buyers. Separately, CFO Luca Maestri noted the segment also benefited from double-digit Apple TV and accessories growth.
2. iPhone Sales Were a Little Below Expectations
After dropping 17% in the March quarter, iPhone revenue (48% of total revenue) fell 12% annually in the June quarter to $25.99, missing a consensus estimate of $26.31 billion. On the bright side, the iPhone installed base (boosted by used iPhone sales and high customer loyalty rates) once more hit a new high, and enhanced trade-in offers helped iPhone sales at Apple's own retail stores grow in June.
The iPhone accounted for less than 50% of total revenue for the first time since 2012. It's still expected to account for over 50% of Apple's September and December quarter sales, as new iPhone launches provide a lift.
3. Mac Sales Growth Improved Sharply, While iPad Growth Cooled
Following a 5% March quarter revenue drop amid Intel (INTC) - Get Report CPU shortages, Apple's Mac revenue rose 11% last quarter to $5.82 billion, beating a consensus estimate of $5.45 billion. Maestri mentioned that nearly half of all Mac buyers were first-time buyers, which in turn helped the Mac installed base hit a new high. The MacBook overhaul announced three weeks ago could provide a lift to the September quarter's Mac sales.
iPad revenue rose 8% to $5.02 billion, missing a consensus of $5.17 billion, with growth slowing from the March quarter's 22%. iPad revenue still rose in all five of Apple's geographic reporting segments; the installed base hit a new high, and over half of iPad buyers were first-time buyers.
4. Services Growth Remained Broad-Based
Services revenue came in at $11.46 billion, slightly below an $11.68 billion consensus. Revenue officially grew 13%, and was up 15% excluding a one-time, year-ago gain related to lawsuit settlements; the adoption of ASC 606 accounting rules has also impacted services growth a bit in recent quarters.
It's possible that Alphabet/Google's (GOOGL) - Get Report giant search ad revenue-sharing payments to Apple grew more slowly last quarter, given what Google reported last week. But sales momentum for Apple-branded services remained strong. Maestri disclosed the App Store, Apple Music, cloud services (iCloud storage subscriptions) and AppleCare all saw double-digit growth, and that Apple Pay and App Store search ad revenue grew at triple-digit rates.
App Store growth, which is benefiting from the end of a Chinese government halt on game monetization approvals, is said to have accelerated from the March quarter. And the total number of paid subscriptions (whether from Apple or a third party) handled by Apple's services ecosystem rose by another 30 million sequentially to over 420 million.
Maestri did caution that AppleCare will be facing tougher annual comparisons later this year, following a 2018 expansion of its partner base. On the flip side, the upcoming launches of the Apple Card and Apple's TV+ and Arcade services should provide a boost to services revenue.
While Apple's product gross margin (GM) fell 2.4 percentage points annually to 30.4%, its services GM rose by 2.3 points to 64.1%. As a result, while services accounted for 21% of Apple's revenue, they produced 36% of its gross profit dollars.
5. Sales Trends in China and Other Emerging Markets Improved
While Apple's sales to the "Greater China" region (it covers Mainland China, Hong Kong and Taiwan) fell 4% to $9.16 billion, that's a much smaller decline than the March quarter's 22% drop and the December quarter's 27% decline. Cook added that Greater China revenue was up in constant currency, and that Mainland China revenue rose in dollars as well.
Sales trends also improved in some other emerging markets. "Strong double-digit" growth was reported for India and Brazil, and Thailand, Vietnam and the Philippines were said to have hit new sales records.
6. A Strong Dollar Continues Impacting Revenue Growth
In Apple's March quarter, currency swings had about a 2-percentage-point impact on revenue growth. In the June quarter, that figure increase to 3 percentage points. As a result, while total revenue grew 1% in dollars, it was up 4% in constant currency.
For the September quarter, Apple is guiding for forex to have about a $1 billion impact on revenue. At the midpoint of its revenue guidance range, that implies an impact of about 1.6 percentage points.
7. Stock Buybacks Continued
$17 billion was spent to buy back close to 88 million shares via open-market transactions. This follows about $24 billion worth of buybacks in the March quarter, and a more modest $8 billion in the December quarter. Thanks to buybacks, Apple's diluted share count fell by about 330 million annually to 4.6 billion, which in turn boosted the quarter's EPS by about $0.15.
With Apple possessing over $102 billion in net cash (cash minus debt) and generating over $60 billion in annual free cash flow, and with Maestri reiterating that his company aims to eventually become net cash neutral, expect Apple to remain an avid buyer of its own stock.
TheStreet's Eric Jhonsa previously covered Apple's earnings report and call through a live blog.
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