Tuesday, 01 May 2018 21:20

Apple Jumps After Missing iPhone Sales But Launching New $100 Billion Buyback

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As we wrote in our preview, AAPL earnings would be a trade-off between (disappointing) iPhone sales and the size of the company's buyback, and sure enough, that's exactly what happened.

In the second fiscal quarter, Apple sold 52.2MM iPhones, missing low-balled expectations of 52.3MM, but because it beat on the bottom and top line, reporting Q2 EPS of $2.73, vs Exp. $2.64 on revenue of $61.1BN, also topping expectations of $60.9BN, and mostly because Apple announced a new $100BN buyback and a 16% increase in the dividend, the stock has jumped 4% after hours.

As many had expected, Apple product sales missed on every metric:

  • Q2 iPhone sales 52.2MM, vs Exp. 52.3MM
  • Q2 iPad sales 9.1MM, vs Exp. 9.17MM
  • Q2 Mac sales 4.1MM, vs Exp. 4.14MM

A clearer breakdown of iPhone sales in Q2, shows that after peaking in 2015, Apple has had trouble breaking back over 50 million.

  • Q2 2018: 52.2 million
  • Q2 2017: 50.8 million
  • Q2 2016: 51.2 million
  • Q2 2015: 61.2 million
  • Q2 2014: 43.7 million
  • Q2 2013: 37.4 million
  • Q2 2012: 35.1 million
  • Q2 2011: 18.6 million
  • Q2 2010: 8.8 million
  • Q2 2009: 3.8 million
  • Q2 2008: 1.7 million

And yet, despite stagnant iPhone growth, the following breakdown of Q1 revenue shows that the company has been more than able to offset the topline growth:

  • Q2 2018: $61.1 billion
  • Q2 2017: $52.9 billion
  • Q2 2016: $50.6 billion
  • Q2 2015: $58.0 billion
  • Q2 2014: $45.7 billion
  • Q2 2013: $43.6 billion
  • Q2 2012: $39.2 billion
  • Q2 2011: $24.7 billion
  • Q2 2010: $13.5 billion
  • Q2 2009: $9.1 billion
  • Q2 2008: $7.5 billion

Another disappointment: ASPs also came in below expectations, at $728 vs the $740 expected, even though as Tim Cook said in the statement, "Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter." This also meant that Q2 margins of 38.3% also missed expectations of 38.5%.

On the positive side, however, and as noted above Apple beat on the top and bottom line, with revenue rising to $61.1BN, while China revenue jumped a notable 21% Y/Y to $13 billion (see chart below). Just as notable, Q2 Service Revenue surged 31% to $9.19BN, smashing expectations of $8.26BN as the transition from iPhones to "Services" continues.

Speaking to Bloomberg, Maestri said that the App Store is the biggest driver of Apple's services business, which saw strong year over year growth. He also said that Apple has 270 million paid subscribers - across applications and its own services, which...

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