Apple (AAPL) announced its Q1 earnings on Thursday, reporting a rare miss on analysts’ expectations, as revenue fell 5% year over year to $117.2 billion. Even worse, iPhone sales fell 8% year-over-year to $65.7 billion, accounting for more than half of Apple’s total revenue.
Those results would have been a disaster for any other company. Look at Amazon (AMZN), which reported a full-year net loss of $2.7 billion. As of Friday, the e-commerce giant’s shares were up more than 4%. Microsoft (MSFT)? After announcing a slowdown in cloud growth last week, its shares were down about 1%. Meanwhile shares of Google parent Alphabet (GOOG, GOOGL) were up more than 1% after the company reported a decline in ad sales.
You’d think Apple would have the same kind of calculation on Wall Street as its peers. But as of midday Friday, shares of the iPhone maker were up more than 3%. The reason? Apple’s report was not as bad as it could have been. Indeed, despite a decline in iPhone, Mac, and Wearables revenue, there was also good news.
The report’s position was that Apple’s install base now stands at a whopping 2 billion devices. The iPhone install base in particular is at an all-time high, and emerging markets have seen double-digit growth, and Chief Financial Officer Luca Maestri singled out Mexico and India during the company’s earnings call. And that, he said, helped push the company’s Services revenue to $20.8 billion.
In addition, Apple said that the number of paid subscribers to its various services was over 935 million users. That’s 150 million more than the company had a year ago and four times more than what was recorded five years ago.
Apple has been pushing the growth of its services for years as a way to help offset its reliance on iPhone sales, and with the business now raking in $20.7 billion in Q1, it’s the company’s second-biggest money maker behind behind the iPhone.
“Accounts paid and transactions grew by double digits [year-over-year]… which tells us that Apple continues to penetrate the installed base and increase monetization,” BofA Global Research analyst Wamsi Mohan wrote in a note following the Apple report.
As Morgan Stanley’s Erik Woodring pointed out in his own investor note, the growth of Apple’s ecosystem means there is still “significant room to increase spending per user.”
Apple’s gross margins are also expected to come in between 43.5% and 44.5% in the coming quarter, which Wedbush’s Dan Ives says is a result of Apple’s push to bring more of its device components, including its chip development , in the House.
In addition, Apple CEO Tim Cook says iPhone production is back to normal after worker protests over the COVID lockdowns at the Foxconn factory 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
That’s not to say that the story out of Cupertino is sunshine and rainbows. Apple remains a company that lives and dies on consumer spending habits, and with consumer confidence low, Mohan says there are concerns about the market’s ultimate demand for Apple products.
The decline in iPhone sales wasn’t just a supply problem either. According to IDC’s Quarterly Global Mobile Tracker, smartphone shipments fell 18% in Q4, due to slowing demand for phones and consumers pulling back on spending after the boom companies saw during the pandemic.
In addition, Apple is predicting a double-digit decline in Mac and iPad sales in the coming quarter. And that’s after Apple released new MacBook Pros and Mac minis with the company’s latest M2 Pro and M2 Max chips. New computers usually drive sales growth, but it looks like they can’t match the same increases Apple saw last year.
Still, unlike its other Big Tech cohorts, Apple’s business still seems resilient enough to keep it from laying off any of its employees. And Wall Street seems to have taken notice.
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