Apple just had its best September quarter of all-time and CEO Tim Cook couldn’t have sounded happier when he got on the phone with investors today. The company is heading into the holiday season with its best lineup ever and expects to set more records next quarter.
Investors did not seem to be too impressed with the results though. Apple’s stock price dropped from $222.22 to as low as $206 in after-hours training. Despite Wall Street’s worries about Apple, there was plenty of achievements for Tim Cook and Luca Maestri to boast about on today’s call.
There were the biggest revelations from today’s call:
Unit sales numbers are dead
In a shocking move, Apple CFO Luca Maestri revealed the company will no longer report unit sales for the iPhone, iPad and Mac. Apple’s top competitors don’t provide unit sales, so the company says it will provide unit sales only when it offers qualitative commentary.
The company says that unit sales are not as valuable a metric today as it was in the past. That could be because sales have been flat over the last few years, even though revenue has been growing. Average sale price is the key metric investors look at now as the price of the iPhone has shot up recently. Falling iPhone sales units is worrisome to investors, so Apple’s just not going to give us those numbers anymore.
Tim Cook compared giving unit sales numbers to a shopping cart — the number of items in the cart isn’t as important as the total bill of sale.
The bottom line is that nobody can sell more smartphones (or cars or fidget spinners) every single year forever. It’s just not possible. As markets mature, sales slow. Apple’s massive user base gives it a solid position from which to continue spinning money.
Really not looking forward to all of the "Apple sold XX iPhones last quarter according to Industry Research Firm XYZ" blog posts in the coming years.
Their numbers were wrong even with Apple disclosing unit sales.
— Neil Cybart (@neilcybart) November 1, 2018
China is strong
Turkey, India, Brazil and Russia are being blamed by Tim Cook for the lower guidance next quarter but he said he wouldn’t put China in that category. Business in China is up 16 percent. iPhone sales were up by double digits and services revenue grew too.
Healthcare could be big for Apple
Providing healthcare services could be Apple’s next goldmine. Asked about whether Apple will make a healthcare subscription service, Tim Cook said the company has an intense interest in the space. They’re adding new products and non-monetized services to its offerings.
“I don’t wanna give away what we’re doing but this is an area of major interest to us,” said Tim.
Services are booming
Apple just had its biggest quarter ever for services with $10 billion in revenue. That feat comes down to the massive installed user base. It’s like a perpetual money machine.
“We’ve added new services to our portfolio” over the past few years, Tim said. “And clearly we will want to continue to offer new services over time.”
That means new vectors to grow the business. And the company is on pace to achieve its optimistic goal for boosting service revenue.
The magic pipeline paid off
For the last few years, we’ve heard Tim Cook tout Apple’s amazing product pipeline on earnings calls. It appears that all that talk has paid off.
Tim Cook was absolutely stoked about the products Apple had going into the holiday season. Three new iPads, a couple iPad Pros, new MacBook Air and an affordable new Mac mini just joined Apple’s already impressive array of tech goodies. Multiple times during the call Cook told investors that the company is heading into the holiday season with its best product lineup ever. That could pay off huge by the time the company reveals record earnings for the holiday quarter.
ASP is off the charts
Unit sales numbers are going away but Average Selling Price is the new king metric when it comes to analyzing Apple’s success.
The company’s strategy to make the iPhone more and more expensive as a catalyst for revenue growth is paying off. iPhone sales are flat because the market is oversaturated but Apple is making more money than ever of each one sold. That’s one of the big reasons Apple is ditching its unit sales reporting.
ASP could take a dip in the upcoming quarter though. Luca Maestri warned investors that launching the high-end iPhone last quarter followed by the cheaper one this current quarter (iPhone XS then iPhone XR) is the opposite of the strategy followed last year, where the cheaper iPhone 8 came out a quarter before the top tier iPhone X.
Emerging markets are weakening
Holiday sales for Apple’s first fiscal quarter of 2019 may disappoint some investors. Tim Cook blamed its lower guidance on weaker emerging markets and said sales may come in lower than Wall Street’s expectations. Another bad sign is that every foreign currency has depreciated against the U.S. dollar in the last 18 months.
Uncertainty on whether Apple can keep up with the demand for new products could also be a problem. The company expects to bring in $89 billion and $93 billion in revenue. Some of the most bullish investors were hoping guidance would come in at $100 billion, but that sounds like a pipedream right now.
Tim Cook told investors that he’s still bullish on India but the currency weakness is part of Apple’s challenge there. Hopefully, this is just a speed bump along Apple’s road to getting a strong foothold on the market.