Another big quarter for Apple's (AAPL) wearables businesses and a reduced iPhone sales decline helped the company once more top estimates.
On Wednesday afternoon, Apple reported September quarter (fiscal fourth quarter) revenue of $64.04 billion (up 2% annually) and GAAP EPS of $3.03, beating consensus analyst estimates of $63.02 billion and $2.83. And for the seasonally big December quarter, Apple guided for revenue of $85.5 billion to $89.5 billion (up 1% to 6%), favorable at the midpoint to an $86.37 billion consensus.
Apple's shares, which had already rallied in recent weeks amid signs of better-than-expected demand for its 2019 iPhones, rose 2% in after-hours trading to $248.19. That puts them up 57% on the year.
Here are some notable takeaways from Apple's earnings report and call.
1 Apple Watch and AirPods Sales Continue Taking Off
After growing 48% during its June quarter, Apple's Wearables, Home & Accessories reporting segment saw revenue grow 54% annually in the September quarter, comfortably beating a $5.94 billion consensus.
Tim Cook mentioned on the call that Apple's wearables revenue, which covers the Apple Watch, AirPods and Beats headphones, once more grew "well over 50%," and later added that about three-fourths of Watch buyers during the quarter were first-time buyers. CFO Luca Maestri indicated that accessories sales were also strong.
The disclosure comes six weeks after the unveiling of the Apple Watch Series 5, whose models pack always-on displays, and just two days after the unveiling of the $249 AirPods Pro, which among other things support noise-cancellation and the ability to adjust music playback based on the shape of a user's ears.
2. iPhone Sales Were a Little Better Than Expected
iPhone revenue (52% of total revenue) came in at $33.36 billion, down 9% annually but above a $32.77 billion consensus. Sales got a bit of a lift from September's iPhone 11 and 11 Pro launches; Apple started taking pre-orders for the phones 15 days before the quarter ended.
Maestri noted the iPhone active installed base (said in early 2019 to be above 900 million) once more reached a new high, and Cook struck an upbeat tone about expected iPhone 11/11 Pro demand for the December quarter. With annual comparisons getting much easier, the pre-earnings consensus was for iPhone revenue be down 2.5% in the December quarter to $50.66 billion.
3. Services Growth Improved Some
Services revenue (close to 20% of total revenue) rose 18% to $12.51 billion, topping a $12.21 billion consensus. Growth improved from the 15% clip seen in the June quarter after adjusting for a one-time, year-ago gain.
Maestri said all five of Apple's geographic reporting segments saw double-digit Services growth, and that revenue records were set for the App Store, Apple Music, Apple Pay, cloud services (iCloud storage), AppleCare and the App Store search ad business. Apple Pay revenue and transactions more than doubled, and the number of paid subscriptions that Apple either provides or takes a cut on grew by 30 million sequentially to over 450 million.
And though Apple doesn't mention it on its calls, Services revenue also benefits from Alphabet/Google's continued search ad revenue growth, since Apple gets a large cut on Google search ad revenue produced via the Safari browser or iOS' built-in search feature.
4. iPad Sales Grew Strongly, While Mac Sales Fell
The iPad capped off a strong fiscal 2019 with September quarter revenue of $4.66 billion, up 17% and close to a $4.67 billion consensus. Good demand for the third-gen iPad Pros that launched in the fall of 2018 has been a major growth driver.
Mac revenue fell 5% to $6.99 billion, missing a $7.5 billion consensus. Cook noted Mac sales were facing a tough annual comparison due to the year-ago launch of new MacBook Pros, and Maestri said Apple's December quarter guidance accounted for the fact that year-ago product launches will cause tough Mac and iPad comparisons (presumably, this means there won't be major iPad and Mac launches in the December quarter).
Both the Mac and iPad installed bases hit new highs, with more than half of all buyers for each product line said to be first-time buyers.
5. Gross Margin Was In Line with Expectations
Apple posted a GAAP gross margin (GM) of 38.0%, down 0.3 point annually but at the middle of a guidance range of 37.5% to 38.5%. Services GM rose 3 percentage points annually to 64.1%, while products GM fell by 2.1 points to 31.6%.
The company's December quarter GM also stands at 37.5% to 38.5%, and compares favorably at its midpoint to a 37.6% consensus. Lower iPhone sales, iPhone pricing changes and a strong dollar have been margin headwinds in recent months, while lower memory prices and strong services growth have been margin tailwinds.
6. Chinese Revenue Fell Slightly
Following a 4% June quarter revenue drop that was much better than the 20%-plus declines registered in the prior two quarters, Apple's Greater China revenue (it covers China, Taiwan and Hong Kong) fell 2% in the September quarter to $11.13 billion. On a constant currency basis, revenue was up 1%.
Cook asserted Apple's 2019 iPhones are doing well in China, and indicated wearables sales are taking off in the country. He also suggested easing trade tensions have been a positive for Apple.
7. Close to $18 Billion Worth of Stock Was Repurchased
After spending $17 billion on buybacks during its June quarter, Apple spent nearly $18 billion in its September quarter to repurchase 86 million shares via open-market transactions. $67 billion was spent on buybacks in fiscal 2019, lowering Apple's diluted share count by 7% to 4.52 billion (and boosting EPS in the process).
Apple ended the September quarter with $206 billion in cash and $108 billion in debt, which spells a net cash balance of $98 billion. Maestri reiterated that Apple, which produced close to $59 billion worth of free cash flow in its latest fiscal year, aims to eventually be net cash neutral.
TheStreet's Eric Jhonsa previously covered Apple's earnings report and call through a live blog.
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