Apple shares are soaring in after-hours trading today thanks to yet another record-breaking earnings report.
Tim Cook and Apple CFO Luca Maestri got on the phone with investors after the numbers came and provided some surprising details on how Apple hit a new high for Q4 revenue despite slowing iPhone sales. While everyone has been focusing on Apple’s booming services business, one of the company’s other product categories has transformed into its true growth engine.
Wearables are killing it
With $6.5 billion in revenue during Q4 2019, Apple’s Wearables category saw more year-over-year growth in absolute dollars than Apple Services. Tim Cook wasted no time on the call plugging Apple’s newest wearable, the AirPods Pro. During his intro, Tim Cook thanked anyone who was using the new wireless earbuds to listen to today’s call, even though they just started arriving on customers’ doorsteps today.
Armed with Apple Watch Series 5, a cheaper Apple Watch Series 3 and two price points for AirPods, Apple has set itself up to have a gangbusters holiday quarter. Those products could be some of the most popular gifts this Christmas and it sounds like Apple’s got even more impressive wearables slated for next year.
“Apple’s greatest contribution will be to people’s health,” said Tim Cook.
There’s tons of Apple to grow too. 3 out of 4 people buying Apple Watch last quarter were new to the watch so it’s not subjected to the same upgrade cycles as the iPhone.
Services are in full swing
Tim Cook made a goal to double Apple Services revenue by the end of 2020 and it looks like the company is on pace to hit that mark. Services brought in $12.5 billion in revenue last quarter, beating the iPad, Mac and Wearables.
Apple’s own services should help the category grown even more soon. Apple TV+ is launching in two days. Apple Music brought in more money than ever last quarter. Cook was pretty bullish on the number of people that entered the trial period of Apple Arcade which is entering its first full bill cycle this month. Apple Pay is dominating the market (more on that in a minute) and Apple’s making a killing off subscriptions. The iPhone-maker now has 450 million active paid subscriptions across its platforms and expects to hit 500 million soon.
iPhone sales aren’t that bad
On a year-over-year basis, iPhone sales have dropped. But the amount they declined in Q4 2019 (9%) was much lower compared to the previous quarters this year. The active install base of iPhone users grew to all-time highs in each geographical segment too.
Apple hasn’t seen iPhone revenue growth in a while but that could change in Q1 2020. Tim Cook said he was thrilled with what they’re seeing early with iPhone 11 and iPhone 11 Pro sales though he didn’t go so far as to give actual sales numbers.
Apple Pay > PayPal
Even though it’s only been around for five years, Apple Pay is now used more than PayPal. Apple revealed that it recorded 3 billion Apple Pay transactions in Q4. Not only is that more than PayPal, but the service is also growing four times as fast. Apple Pay has quite a few advantages because it’s popular online and at physical retail locations.
More bundles on the horizon?
Tim Cook described bundling Apple TV+ with the purchase of new iPhones, iPads and Macs as “a gift to our users.” The company might consider doing it again in the future too. While Cook warned that investors shouldn’t see the Apple TV+ as a new pattern, the company could decide to do it again in the future if it makes sense. In fact, Cook said he thinks some customers already view their monthly iPhone Upgrade Plan as payment for access to all of Apple’s services and a new iPhone.
China is on the rise
After going through a lot of rough quarters in China, Apple is finally starting to see some positive signs from the country. iPhone 11 reception was very good. Services grew double digits. And the App Store finally got approval for some key games.
The trade war is starting to look less dangerous too. Cook has long had a positive view on how the trade war with China and the US would play out and it looks like he was right.
“The tone has changed significantly,” Cook told investors, saying he always felt it would be in the interest of both parties to reach an agreement. Apple is paying some tariffs today that went into effect in September or before. The iPhone could get hit with tariff fees in December if an agreement isn’t reached but both sides seem willing to reach an agreement sooner rather than later.