Apple Reports Blockbuster Quarter: Record Service Revenue, Blowout iPhone Sales... But No Guidance And Stock Drops
On the back of disappointing earnings from Netflix and Microsoft, offset by a superb report from Google, traders were keeping a close eye on AAPL results this afternoon with Amazon still set to report on Thursday. With Wall Street expecting nearly $35 billion in iPhone revenue in the third quarter, this would be an all-time record for Apple should Apple meet or beat. It would also mean that iPhone demand has remained stellar despite being just months away from the next iPhone in what is typically a “light” quarter for iPhone sales; but thanks to 5G and the momentum for the iPhone 12, analysts believe otherwise this year. Furthermore, if consensus is right in expecting revenue of $73.8 billion, this would also be Apple’s strongest ever third-quarter revenue wise - it would be a gigantic leap over the previous Q3 record of about $60 billion last year. That over 20% growth would come despite a chip shortage that the company earlier said would create a $3 billion to $4 billion negative hit for the quarter.
And so, much to the delight of bulls, two quarters after Tim Cook's company reported blockbuster earnings including its first ever $100BN quarter on the back of the iPhone 12 release, moments ago AAPL reported earnings that once again blew away expectations on the top and bottom line.
Here are the details:
- Q3 Rev. $81.4BN, up a whopping 36% Y/Y and smashing expectations of $73.82BN
- Q3 EPS $1.30, steamrolling expectations of $1.01
- Q3 Gross margin $35.26 billion
- Q3 iPhone Revenue $39.57B, up 49.8% Y/Y and smashing expectations of $34.56B
- Q3 Service Revenue $17.49B, Est. $16.32B and a new all time high
- Q3 Products Rev. $63.95B, Est. $58.18B
Some more details from the quarter:
- iPad Revenue $7.37B, up 11.9% and beating the estimates of $7.13B
- Mac Revenue $8.24B, up 16.3% and also beating estimates of $7.99B
- Wearables, Home & Accessories $8.78B, up 36%, and beating the estimate of $7.62B
- Greater China rev. $14.76 billion, up 58% Y/Y
- Cash and cash equivalents $34.05 billion, -11% q/q
Earnings snapshot:
Commenting on the quarter, CFO Luca Maestri said that “Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices.”
“We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans.”
Unlike last quarter when AAPL announced a new $90BN buyback - larger than the market cap of 350 S&P500 companies - this quarter the company merely kept its dividend unchanged from last quarter at 22 cents per share (which was increased last quarter from 20.5c).
Some more details
While Mac revenue jumped 16.3% to $8.2 billion, compared to $7.1 billion a year earlier (and above the $7.99 billion estimate) and iPad sales also rose by 11.9% to $7.4 billion, the highlight was iPhone sales which exploded by a whopping 49.8% to $39.6BN, up from $26.4BN, and blowing away expectations of $34.6BN.
As shown above, the iPhone 12 is doing extremely well, leading to almost $40 billion in revenue during the quarter which is remarkable at a time when demand for phones is usually subdued since Apple is likely to announce the iPhone 12’s replacement in just two months.
Also of note, Apple's wearables, home and accessories segment grew to $8.78 billion. That category includes the Apple Watch, AirPods, Apple TV, the HomePod and various other accessories. Apple hasn’t updated the AirPods earbuds since 2019, last year’s Apple Watch upgrades were minor, and this year’s Apple TV updates were focused on a faster processor and redesigned remote.
The geographic breakdown was striking, and shows the base effect in its full glory, with all regions posting double-digit growth, and Greater China a whopping 58.2%.
And in dollar terms:
The closely watched Services soared to $17.5BN, beating expectations of $16.3BN...
... and up 32.9% from the $13.2BN a year ago.
Yet despite what is clearly another blowout quarter, with record Q3 revenues and all time high service revenues, Apple’s stock isn’t moving much even on such good numbers. Why? For yet another quarter, Apple didn’t give guidance for the current quarter, the one where it will announce its next slate of devices. The lack of any visibility at a time when various stimulus programs are about to end is not creating much excitement for investors who only care about what’s coming next.
The lack of stock upside is inline with the muted - or outright disappointing results - we’ve seen to most technology earnings this quarter. Stocks are priced to perfection, and investors want beyond perfection to get excited.
The best summary of the stock's lackluster response to yet another impressive quarter comes from Bloomberg's Mark Gurman who says that "I really think investors just want something new from Apple. At this point, they’re just churning out new versions of their existing categories and making it harder to leave the ecosystem. Exciting for dollars and cents sure, but for consumers and future growth? Not so much."
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