Apple’s earnings were much better than they seem

Apple (AAPL) announced its first-quarter earnings on Thursday, reporting a rare miss on analyst expectations, as revenue fell 5% year-over-year to $117.2 billion. What’s worse, iPhone sales, which account for more than half of Apple’s total revenue, were down 8% year-over-year to $65.7 billion.

For any other company, those results would have been a disaster. Just look at Amazon (AMZN), which reported a net loss of $2.7 billion for the full year. As of Friday, shares of the e-commerce giant fell more than 4%. Microsoft (MSFT)? After announcing the slowdown in cloud growth last week, its shares fell about 1%. Meanwhile, shares of Google parent Alphabet (GOOG, GOOGL) fell more than 1% after the company reported a decline in ad sales.

You’d think Apple would face the same kind of reckoning on Wall Street as its peers. But as of noon on Friday, shares of the iPhone maker were up more than 3%. The reason? Apple’s report wasn’t as bad as it could have been. In fact, despite a decline in revenue from iPhones, Macs and Wearables, there was also good news.

The highlight of the report was that Apple’s installed base now comprises a whopping 2 billion devices. The iPhone install base in particular is at an all-time high and saw double-digit growth in emerging markets, with CFO Luca Maestri specifically calling out both Mexico and India during the company’s earnings call. And that, he said, helped drive the company’s Services revenue to a record $20.8 billion.

Apple CEO Tim Cook introduces the new iPhone 14 at an Apple event at its headquarters in Cupertino, California, U.S., September 7, 2022. REUTERS/Carlos Barria

In addition, Apple said that the number of paid subscribers for its various services exceeded 935 million users. That’s $150 million more than the company had a year ago and four times what it posted five years ago.

Apple has been driving growth in its services for years as a means to help offset its reliance on iPhone sales, and with the business now raking in $20.7 billion in the first quarter, it’s the second-biggest money maker in the world. the company behind the iPhone.

“Both payment and transaction accounts grew double digits [year-over-year]…which tells us that Apple continues to penetrate the installed base and increase monetization,” Wamsi Mohan, an analyst at BofA Global Research, wrote in a note after the Apple report.

As Morgan Stanley’s Erik Woodring noted in his own investor note, the growth of Apple’s ecosystem means there is still “significant room to increase spend per user.”

Apple’s gross margins are also expected to range between 43.5% and 44.5% in the next quarter, something Wedbush’s Dan Ives says is a result of Apple’s push to bring more components to its devices. , including chip development, in-house.

Also, Apple CEO Tim Cook says iPhone production has returned to normal following worker protests over COVID lockdowns at a Foxconn plant in China in November and December. That should address at least some of the decline in iPhone sales going forward.

There could still be trouble ahead

That is not to say that the history of Cupertino is sun and rainbow. Apple is still a company that lives and dies based on consumer spending habits, and with consumer confidence low, Mohan says there are concerns about end-market demand for Apple products.

The drop in iPhone sales wasn’t just a supply issue, either. According to IDC’s Worldwide Quarterly Mobile Phone Tracker, smartphone shipments declined 18% in the fourth quarter, due to slowing demand for phones as consumers cut back on spending after the boom in businesses during the pandemic.

Additionally, Apple forecasts Mac and iPad sales to decline by double digits in the coming quarter. And that was after Apple released new MacBook Pros and Mac minis with the company’s latest M2 Pro and M2 Max chips. New PCs would normally drive sales growth, but they just can’t seem to match the same increases Apple saw last year.

Still, unlike its other Big Tech cohorts, Apple’s business has apparently remained resilient enough to avoid having to lay off any of its employees. And Wall Street seems to have noticed.

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