'Firing on all cylinders': Apple crushes earnings, beating its own expectations
Apple CEO Tim Cook. Justin Edmonds/Getty Images
- Apple beat Wall Street's targets for earnings and revenue on Thursday. The stock popped in after hours.
- Apple's unit sales grew for all three of its major product lines — iPhone, iPad, and Mac.
- "We're literally firing on all cylinders," Tim Cook said.
Apple topped Wall Street targets across the board in its fiscal fourth quarter, displaying strength across all its product lines on the eve of one of the most anticipated iPhone launches ever.
Apple's forecast for the current quarter was slightly above analyst expectations, boosting confidence that the highly anticipated iPhone X will be a hit and propelling Apple's shares up more than 3% in after-hours trading on Wednesday.
"You can see from the guidance that we’re very bullish," Apple CEO Tim Cook said on the company's post-earnings conference call on Thursday.
Cook was circumspect in his comments about specific expectations for the iPhone X, which goes on sale Friday and will be Apple's most expensive iPhone ever, with a starting price of $999. "We'll see how things go," he said in response to an analyst question about the supply and demand levels for the new phone.
But analysts and investors saw good news in Apple's forecasted revenue range of $84 billion to $87 billion for the current quarter, which at the midpoint would be 9% higher than last year's $78.4 billion.
The guidance implies strong iPhone X demand and "a significant uptick in ASPs [average selling prices] for the December quarter," wrote GBH Insights analyst Dan Ives in a note to clients.
The China factor
Ives flagged China as a particularly important region for iPhone X sales, and he pointed to strong results in the recently ended quarter, with revenue in Greater China up 12% year-over-year at $9.8 billion.
"We believe this crucial region appears to be finding its sea legs again and is the main ingredient in Apple’s recipe for success around iPhone X upgrades during 2018."
Here is what Apple reported:
- Q4 EPS (GAAP): $2.07 per share, up 24% year-over-year, versus Wall Street expectations of $1.87
- Q4 Revenue: $52.6 billion, up 12% y/y, versus expectations of $50.5 billion and Apple's own forecast of between $50-$52 billion
- Gross margin: 37.9%, flat y/y
- iPhone units sold: 46.7 million, up 2% y/y, versus expectations of 46.1 million
- iPhone average selling price: $618, flat y/y, versus expectations of $633
- iPad units sold: 10.3 million, up 11% y/y
- Mac units sold: 5.3 million, up 10% y/y
- Q1 2018 Forecast: $84 billion to $87 billion, with a midpoint slightly above $85.2 million expectation
With $52.6 billion in sales, it not only beat Wall Street expectations but it also beat its own forecast, which topped out at $52 billion. All three of Apple's major product lines — iPhone, iPad, and Mac computers — reported year-over-year unit sales growth.
Cook said on the call that sales of the recently released iPhone 8 and iPhone 8 Plus were strong, with demand for the iPhone 8 Plus even stronger than the company expected. Apple's Services business, which includes sales from apps on the App store, Apple Music subscriptions as well as licensing fees, grew 34% year-over-year.
"We're literally firing on all cylinders," Tim Cook said.
Apple also declared a cash dividend of $.63 per share. Apple's having a good run. Before it reported earnings, its stock was already up 45% so far this year.
Notes from the conference call:
6:01: OK, the call's over. Thanks for tuning in!
5:59: "We're literally firing on all cylinders," Tim Cook said.
5:56: People are spending more time on the App Store and downloading more apps, Luca Maestri says.
5:52: Where does AR show up on the balance sheet? "We tend to focus first and foremost on customer experience. All about the making sure the experience is great. If we get that right, revenues and profits will be a result of that."
5:50: India is "analogous to the many years we put into China. It's building stores, channels, developer ecosystem, having the right product lineup for the market. We're making good progress and gaining understanding, but we still have a long way to go."
5:50: India question. What will unlock the massive market?
5:48: "Truth is we don't know, we put our best estimate into the guidance" Tim Cook says about holiday quarter supply.
5:45: Tim Cook brushes off question about Apple finally innovating. "There's always doubting Thomases" and there will be until he retires.
5:44: Tim Cook compares the price of the $999 iPhone X to "a coffee per day." That's expensive coffee!
5:39: "It's only today that the first customers can look at all three" of the new iPhones, says Tim Cook. "A large number of people pay for the phone by month."
5:38: Apple Music subscriptions up 75% year-over-year, says Luca Maestri.
5:34: You can tell from the average selling price, good success in low and high-end iPhone sales. "Work hard to have an iPhone that's affordable as possible" for people with limited budgets.
5:32: Augmented reality "amplifies human performance" instead of isolating, Tim Cook says. Looking at things in the market and what's coming, it's "all over the place," Cook says. Mentions shopping, gaming, and business productivity apps. "I see apps that make me want to go back to K-12 again."
5:31: Tim Cook mentions that the first iPhone X went on sale in Australia with hundreds waiting in line.
5:28: Follow-up question about China. "Upgraders and Android switchers in China were up year-over-year. Results are broad-based and across the board. Decline we've been experiencing in Hong Kong moderated."
5:27: Question and answer time! First question is about iPhone X demand. Tim Cook: "The ramp for iPhone X is going well, especially considering that it's the most advanced iPhone ... and it has lots of new technologies in it ... we're gonna get as many of them as possible to the customers as soon as possible. I can't predict at this point when that balance will happen."
5:24: Retail traffic up 19% year-over-year, says Luca Maestri.
5:20: Performance for Mac was fueled by demand for MacBook Pro, Apple's most expensive laptop. Educational purchases grew "double digits" year-over-year.
5:17: Loyalty rate for current iPhone owners is 95%
5:14: Now CFO Luca Maestri is speaking.
5:12: "Wearables business" up 75% year-over-year. Includes Apple Watch, Beats, and AirPods. Annual revenue of a Fortune 400 company.
5:10: Apple Watch had unit growth of over 50% for the third straight quarter. Cook says LTE is a "game changer."
5:08: Tim Cook: "AR is going to change the way you use technology forever." 1000 AR apps in the App Store.
5:07: Services revenue reached all-time quarterly record.
5:06: iPhone 8 and iPhone 8 Plus are the two most popular iPhone models and have been since they were released. iPhone X production is going well "especially considering how advanced the product is."
5:05: Tim Cook says India sales doubled year-over-year.
5:05: Tim Cook is giving his prepared remarks. Surprise! Apple had a great quarter.
4:55: We're waiting for Apple to get started.
Here are the charts:
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