Apple reported its earnings for the first fiscal quarter of 2024 on February 1st, ending a year-long streak of revenue declines. The results beat Wall Street estimates, driven by strong iPhone sales and growth in the services segment. However, China continues to be a weak spot for Apple.
Lead Up to Earnings
Heading into earnings, the focus was on whether Apple could return to revenue growth after four straight quarters of declines on a year-over-year basis. Investors were also watching for signs of recovery in China, which has been impacted by Covid-related disruptions and economic weakness.
In the months leading up to the report, analysts had modest expectations. Evercore forecasted slight upside compared to consensus estimates. Morgan Stanley saw the report as a “clearing event” to refocus investors on Apple’s long-term potential with categories like services and wearables. Overall, expectations were muted due to tough year-ago comparisons and macroeconomic uncertainty.
Top Line Results: Revenue Rises But China Lags
Apple posted total revenue of $119.58 billion, up 0.3% from the year-ago quarter. This marked the first period of growth after the four-quarter decline. However, revenue from China fell 5%. Here are some of the key metrics:
| Metric | Result | Change |
|---|---|---|
| Revenue | $119.58 billion | +0.3% |
| iPhone revenue | $65.78 billion | +7.7% |
| Services revenue | $20.77 billion | +6.4% |
| Revenue from China | $15.47 billion | -5% |
iPhone sales were a particular bright spot, driven by strong demand for the iPhone 15 lineup. Apple also saw growth in its services segment, which includes offerings like Apple Music and iCloud. However, iPad and wearables revenue declined, and China remained challenging.
“While we are glad to have returned to overall revenue growth, we acknowledge that China continues to be an area of weakness for us,” said Apple CEO Tim Cook. “We believe our new products have the opportunity to revive growth in China and are investing accordingly.”
Bottom Line Results: Profits Beat Expectations
Despite the slight revenue increase, Apple delivered standout profitability that exceeded forecasts. Earnings per share came in at $1.88, versus expectations of $1.81. Gross margin also topped estimates at 43.1%.
“It was an impressive beat on the earnings side, even if revenues were only slightly positive,” said Neil Cybart, Apple analyst at Above Avalon. “Apple continues to run a financial juggernaut that generates substantial profitability from the premium device installed base.”
Apple’s profit engine remains intact, allowing it significant flexibility to navigate the current economic crosscurrents.
Outlook: Cautious on China But Confident In Product Pipeline
On the quarterly earnings call, Apple executives provided commentary on the dynamics looking forward. For China, they remained cautious about ongoing headwinds from Covid disruptions and other economic factors.
However, Apple’s management expressed optimism about the product roadmap. “We feel great about the pipeline and can’t wait to show you what we’ve got coming up,” said Cook. Upcoming potential catalysts include an augmented reality headset, the iPhone 16, and an Apple Car unveiling.
While macro conditions continue to create uncertainty, Apple sees green shoots in the iPhone business and growing contribution from services. It believes the current pressures in China will eventually abate. Apple thinks its rapid innovations in areas like AI and VR will support growth even if hardware sales fluctuate.
Key Takeaways: Stabilizing Revenues and Strong Profits
In summary, Apple’s Q1 earnings tell an evolving story. On the one hand, overall revenues have stabilized after a year of declines. Growth has returned, albeit slowly. On the other hand, China remains an albatross during an uncertain time.
However, Apple continues to maximize profitability from its installed base of over 1.8 billion devices. Services and accessories are raising average revenue per user. Disciplined cost management is driving earnings upside.
With its ecosystem momentum and pipeline of new products, Apple looks to be on solid ground financially. Expect a continued balancing act between navigating external variability and elevating the customer experience. If macro headwinds eventually fade, Apple stands ready to accelerate. For now, it’s steady as she goes.
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