Strong iPhone sales support Apple’s growth recovery, but stock price falls due to cautious guidance

Apple Inc. today announced strong results for its fiscal first quarter, specifically halting four consecutive quarters of revenue decline.

But the company’s stock fell in after-hours trading after sales in its most important Chinese market fell more than 13% and after warnings of weaker iPhone sales this quarter.

The iPhone maker reported first-quarter earnings of $2.18 per share for fiscal 2024, excluding certain expenses such as stock compensation, exceeding Street forecasts of $2.10 per share, and sales rose 2% to 119.58 billion. The company reported that it exceeded analysts’ target of $117.91 billion. Overall, the company posted net income of $33.91 billion for the quarter, up from $29.9 billion a year earlier.

Apple did not provide official guidance for the current quarter, which has been standard procedure since the start of the COVID-19 pandemic. However, Apple’s finance chief Luca Maestri said on a conference call that iPhone sales for the current quarter were on track to bring in $51.33 billion in revenue, after subtracting $5 billion worth of sales at one point due to the outperformance. The company said it expects sales to be on par with last year, when sales rose. as supplies were recovering from pandemic-related shutdowns.

Maestri also said that Apple expects total revenue to remain roughly flat year-over-year in the second quarter, even after subtracting $5 billion in iPhone sales. Services revenue is expected to increase approximately 11%.

Investors were less than enthusiastic about Maestri’s comments. Apple shares rose slightly immediately after the earnings announcement, but quickly reversed and fell more than 3% in after-hours trading.

It must have been a relief, at least for investors, to see Apple finally seeing growth again after posting revenue declines for the past four quarters. The company’s gross profit margin also increased, reaching 45% in the quarter.

In an interview with CNBC after the earnings release, Apple CEO Tim Cook (pictured) claimed that some of the company’s growth rates had “significantly accelerated” from the previous quarter. He noted that given the way Apple’s corporate calendar works, there was one week less in the quarter compared to last year. The first quarter of last year was 14 weeks, but the first quarter of fiscal 2024 will be just 13 weeks.

Despite having one less week, Apple reported iPhone sales of $69.7 billion for the quarter, up about 6% year-over-year and beating street expectations of $67.82 billion. This is a positive sign that the new iPhone 15 model released in September is well received.

Apple’s highly profitable services business, which includes Apple Music subscriptions, warranties, advertising, and Apple Pay revenue, also saw some growth, with revenue up 11% to $23.11 billion in the quarter. , which fell just short of Wall Street’s targets. 23.35 billion dollars. Investors are keeping an eye on the services business, believing it to be one of the company’s biggest growth areas.

According to Apple, the company currently has 2.2 billion active devices in use. This is a key metric that helps inform analysts about the sector’s growth prospects, and is up from just 2 billion active devices a year ago.

Cook said the service’s growth was due to improvements in its advertising, payments and cloud services divisions. He noted that the company currently has more than 1 billion active paying members.

Zooming out, Apple showed growth in every region except its major market, China, where sales fell 13%. There, the company faces stiff competition from domestic smartphone makers such as Huawei Technologies Co.

Mac sales in Apple’s other business were $7.7 billion, about the same as the year-ago period, but considering that last quarter’s sales were down 34% on an annual basis, this actually shows improvement. Wall Street expected Mac sales to be $7.73 billion.

Meanwhile, iPad sales have fallen again, down more than 25% year over year. Revenue came in at $7.02 billion, below Street expectations of $7.33 billion. However, it’s worth noting that Apple didn’t release any new iPad models last year. This is the first time in the company’s history.

Cook said the iPad sales slump was something the company expected. “If you recall, iPad faced a very difficult quarter last year when we launched the iPad Pro and iPad 10th generation,” he said.

Finally, there’s Apple’s wearables business. This is called “Other Products” and includes sales of AirPods headphones and the Apple Watch. The division was a bright spot for Apple, with revenue of $11.95 billion, beating expectations of $11.56 billion, but still down 11% from a year ago. No doubt, the forced removal of the company’s latest watches from Apple Stores in December due to a patent dispute with medical device company Masimo has affected sales there.

In an encouraging sign for investors, Cook also hinted that the company plans to delve deeper into artificial intelligence, saying there could be a big announcement later this year. He declined to provide specifics, but said the company wants to compete with Microsoft, Google LLC, Amazon.com and OpenAI in the generative AI space.

“As we look to the future, we will continue to invest in these and other technologies that will shape the future,” Cook told analysts on a conference call. “This includes artificial intelligence, where we continue to invest significant time and effort, and we look forward to sharing more details about our work in this area later this year. .”

Photo: The Climate Group/Flickr