Investors are eagerly waiting to see all the numbers from Apple’s 2018 holiday quarter during today’s earnings call. Based on early reports, some of the numbers might come in even lower than expected.
Apple already warned investors that iPhones sales during Q1 2019 came in lower than expected, mostly thanks to problems in Greater China. Even after lowering revenue guidance, the company still could pull out a few surprises. However, most analysts remain worried that the iPhone sales slump will continue into 2020.
Apple CEO Tim Cook and CFO Luca Maestri are set to get on the phone with investors at 2 p.m. Pacific today. Per usual, Cult of Mac will be here live-blogging all the action with up-to-the-minute analysis on all the important numbers.
Come join the fun:
Cook was probably sweating potential questions on that painful topic.
That’s it. No questions about the FaceTime bug…
Of course, it was always unlikely Cook would say anything about its unannounced streaming video service at the tail end of an earning call. Still, hope springs eternal.
Asked about video and its original content play, Tim Cook says Apple see huge changes coming in customer behavior that is going to accelerate in the next few years.
Apple TV and AirPlay 2 will be critical for Apple’s video distribution. It hasn’t announced its streaming service yet, but it could come during the first half of 2019. Tim said Apple will participate in the original content world but that he’s not ready to extend the conversation beyond stating that they’ll have more to say on it later.
The full quote is: “I’m convinced that making a great product that is high quality is the best thing for the customer.” He didn’t lay this out, but the reasoning is clear: Great products may lead to slower upgrade cycles, but happy customers upgrade with Apple.
“We do design our products to last as long as possible,” Cook says, when asked about slowing upgrade cycles. He then talks up the trade-in bit and says he remains convinced that “making a great product” is still the right thing to do.
Cook sounds a bit more humble than in recent calls. Not hearing a lot of fire as he brushes off today’s questions.
“The upgrade cycle has extended, there’s no doubt about that,” said Tim Cook. People are holding onto their phones longer than before, which is another factor in slowing iPhone sales.
No surprise: Analysts have said the iPhone XR is outselling the other two 2018 models. Still, confirmation is always nice.
Maestri lays out popularity of current iPhone models: iPhone XR comes in first, followed by XS Max, then XS.
Cook admits that iPhone price is a factor. But he says the dwindling subsidies in developed markets like Japan and the United States is an even bigger one.
iPhone sticker shock in the “unbundled world” is a real thing.
What has Apple learned about iPhone pricing? Cook takes the question: iPhone XS is same as iPhone X, but XS Max cost $100 more. And the iPhone XR came in the middle of iPhone 8 pricing. He calls it “actually a pretty small difference.”
However … foreign exchange amplified that difference in emerging markets.
That first question, hammering on slowing growth rate for services, is rough. Maestri writes it off as amortization of free services (or something). It’s basically a reclassification. He says that accounts for 1/3 of the deceleration in services growth rate.
Three other factors explain services’ slip from 24.5 percent to 19 percent growth. 1) International monetary problems 2) App Store in China faces a familiar problem: Getting new games approved 3) Some level of deceleration in Apple Care.
In general, Maestri says he’s very pleased with 19 percent growth.
Asked about lower share buyback rates during the last quarter, CFO Luca Maestri said that Apple is still very committed to executing their buyback program. They want to execute it in a disciplined manner though and take into account overall market conditions, so it pulled back on some of the buybacks.
The App Store in China is a large business for Apple but it has an issue of approving new game titles. Games are the biggest money maker on the App Store, so Apple is hoping to resolve that issue soon.
The obvious joke is they could buy an expensive iPhone.
Apple now has $245 billion of cash and marketable securities. All that money has to be burning a hole in its pocket. Could a major acquisition or three be on the horizon in 2019?
iPad sales were up in four of the five geographic areas it’s sold in. The exception wasn’t listed, but it’s not hard to guess China was the outlier. And the company reached a new high in the installed base of tablets. An exact figure wasn’t revealed, though.
Luca Maestri says that’s an all-time high for iPhone users. Pretty big percentage of the overall 1.4 billion active Apple devices. Wonder what percentage of people with an iPhone have another Apple device?
Announcing total iPhone installed base is welcome. There are over 900 million devices in use.
Apple’s trade-in program for iPhones helps consumers and iOS app developers, Cook says. First, trading in an old phone effectively subsidizes the purchase of a new one. Second, passing the old phone on means more people will (eventually) have a (cheaper, older) iPhone, which means more appetite for apps.
Don’t think I’ve ever heard it laid out exactly that way. But it’s definitely true that iPhones retain their value much better than Android phones.
Tim Cook: “It’s not in our DNA to just stand around and wait for macro-economic conditions to improve.” He cited trade-ins as a way for Apple to improve sales while also helping the environment.
“Apple innovates like no other company on earth and we’re not taking our foot off the gas,” said Tim Cook while teasing “exciting new products” coming out later this year.
We’re just beginning to see the impact Apple wearables can have on health, Cook says, sounding yet another familiar refrain. Gotta agree with him, though.
Tim Cook: “iPad revenue was up 17 percent, it’s highest growth rate in almost six years.”
Nearly 50 percent sales growth for wearables (Apple Watch and AirPods), Cook says. Makes sense — two of Apple’s finest and yet most underrated products!
Apple News has the largest audience of all news apps, Cook says. (Might be a sweet time to roll out an expanded, paid version, huh?)
Tim Cook brought up how amazingly well the Apple Store did in the week between Christmas and New Year’s.
Apple Pay hit 1.8 billion transactions in the last quarter. Double what it was a year ago.
Apple Music now boasts 50 million paid subscribers. Music sales from iTunes hit an all-time high last quarter too.
Apple is being hurt by the end of phone subsidies. Not surprising. People are aware of how much they pay for their devices. That’s hard on a company with very high prices.
Apple’s cheap battery replacement program also took a bite out of iPhone upgrades. Tim Cook is pointing to Apple’s 1.4 billion active install base as a good sign that’s fueling the services business.
The strength of the U.S. dollar has been bad for Apple in international markets.
Another big duh: iPhone XS, XS Match and XR are “by far the best iPhones we’ve ever shipped,” Cook says. I should certainly hope so. Now he’s rerunning all the great specs and highlighting the high customer-satisfaction rates.
Macro-economic conditions in emerging markets proved “significantly more severe” than Apple originally expected, especially in China, according to Tim Cook. But we knew that already.
Apple had record performance in countries like the U.S. and Canada but revenue was dragged down by China and other countries in Asia. Despite that, Apple still sees a lot of positives in China.
Call is starting. Here come the opening remarks.
Morgan Stanley recommended investors buy Apple shares last week. Hope everyone listened because they are up, up, up.
As predicted in my earnings call preview post, operating margins is the new key metric to look at. For the first time ever, Apple is now reporting operating margins on hardware and services. Hardware margins are at 34% while services margins are up year-over-year at 63%.
Here’s Buster’s post on the earnings report Apple just issued.
I don’t remember Apple calling out “Wearables, Home and Accessories” as a sector but maybe they have always called it that. (I always just heard “wearables.”) Anyway, up 33 percent!
This will be the first Apple earnings call in which Cook and co. won’t reveal exact numbers of devices sold. That’s a change the company is making to get analysts and investors to pay more attention to its revenue from all sources, not just handsets.
Should have bought some AAPL stock before today’s report. Apple shares are trading up 4.4% in after-hours trading.
Personally, I’m especially happy to see robust iPad sales, with revenue up 17 percent. In the previous quarter tablet revenue was down 15 percent. But that was before the launch of the brilliant 2018 iPad Pro models.
It’s basically all going according to the new Apple plan. Grow services. Introduce new products that start to take up the slack as we hit the inevitable peak iPhone.
If this were a State of the Union address — remember when we had those? — Tim Cook would basically be saying to the nervous Nellies, “The State of the Union is good, y’all.”
Apple isn’t a one-product company, but iPhone is the cash cow. So a 15 percent decline from handsets leads to a 5 percent drop for the whole enterprise.
Revenue from iPad, Mac, Apple Watch/AirPods are all up.
As Apple punt it: “Revenue from iPhone declined 15 percent from the prior year, while total revenue from all other products and services grew 19 percent.”
On a first scan through the earnings report, everything looks great except iPhone sales.
And here’s the raw earnings report from Apple PR.
The big call starts in 20 minutes. Here’s where you can listen along: Apple Earnings Call.
Meanwhile, here’s the other big Apple news of the day: Serious FaceTime flaw was reported to Apple over a week ago. It’s a serious bug, and Apple took steps to shut down the service while it scrambles to roll out a software fix.
Coming on earnings day, I can’t quite tell if that’s really unfortunate timing or a weird case of bad news taking the sting out of worrisome financials. Guess it depends on how good (or bad) today’s earnings really are.
Just in case you’re playing catch-up while we wait, here’s our primer on why this week’s Apple earnings report is the most important in years.