(Bloomberg) — Apple Inc. soared 7.6% in New York trading after delivering enough good news in its quarterly report to avoid the fate of most tech giants this earnings season, when their peers have seen valuations fall by hundreds of billions of dollars.
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Although sales of iPhones and services were weaker than expected last quarter, Apple’s revenue and profit beat analyst estimates. Even as growth was expected to slow during the current period, investors found enough optimism to send stocks on their biggest one-day rally since July 2020.
The company far outshone Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Microsoft Corp. and others, which delivered dismal earnings reports in recent days, sending its shares tumbling.
But even Apple’s generally positive results raised questions for investors, who are looking for signs that the long-resisting company may finally fall victim to a slowing economy. Apple’s iPhone and services sales were just shy of projections, raising concerns about two areas that were expected to perform strongly. And Apple’s Mac computer business will decline substantially in the holiday quarter after a surge in sales fueled by new models, Chief Financial Officer Luca Maestri warned in a conference call.
With loyal customers still eager to buy its expensive products, Apple has been seen as an outlier during a tech slowdown. The company also released its latest iPhone earlier in the year than usual, giving the fiscal fourth quarter a bigger share of sales of Apple’s flagship device. But raging inflation and a broader slowdown in consumer spending, particularly for personal devices, may still be weighing on the company.
The iPhone, Apple’s flagship device, generated about $42.6 billion in the fourth quarter, which ended on September 24, the company said. Analysts had estimated nearly $42.7 billion. Services, such as streaming music and video, brought in $19.2 billion. That was well below the projection of almost $20 billion.
The shares had declined 18% this year before the earnings, though that was a better performance than most major indexes. The S&P 500 is down 20% in 2022, and the big-tech Nasdaq Composite Index is down 31%.
The Cupertino, California-based company did not provide a specific revenue forecast for the current quarter, continuing the approach it took at the start of the Covid-19 pandemic. But analysts estimate sales of about 128,000 million dollars, which would be an all-time record.
Apple’s overall revenue grew 8.1% to about $90.1 billion in the fiscal fourth quarter. That topped the estimate of $88.6 billion, due to better-than-expected growth in its Mac and wearable businesses. Earnings of $1.29 per share beat the median projection of $1.26.
Apple’s iPhone remains its biggest source of sales, and the company was expected to get a boost from an earlier launch this quarter. The period included approximately nine days of sales for the iPhone 14, iPhone 14 Pro, and iPhone 14 Pro Max. But the iPhone 14 Plus, a new format that has had a lukewarm response from consumers, didn’t launch until the current quarter.
While the iPhone 14 Pro looks similar to the previous two models, new features like a 48-megapixel rear camera and the Dynamic Island interface have helped attract buyers.
The company’s services business includes its streaming music and TV+ platforms, as well as Apple Card, iCloud storage and other digital offerings. It’s considered one of Apple’s key sales drivers, especially as the company expands into new types of services.
Earlier this week, the company increased the prices of some services. Apple Music went up to $10.99 a month from $9.99, and TV+ went up to $6.99 a month from $4.99. Apple also modestly raised prices for its Apple One service bundles. The increases could further boost revenue, though they also risk driving customers to rival services.
iPad sales, meanwhile, fell 13% to $7.17 billion last quarter, also below expectations. The tablet saw a sales resurgence in 2020 and 2021, thanks to the help of workers and students who outfitted their home offices during the pandemic. Demand has slowed since then, and the device suffered supply chain hiccups over the past year.
Apple released a new iPad Air earlier this year, but didn’t come out with a new iPad Pro or entry-level model until the current quarter.
Apple generated $11.5 billion from the Mac, easily beating estimates of $9.25 billion. That product line also enjoyed a pandemic hit, fueled by the spread of hybrid work environments. But it also suffered a slowdown, with Mac sales well below estimates in the June quarter.
What Bloomberg Intelligence Says:
Apple’s slight rise in revenue in the fiscal fourth quarter, at a time when most big tech companies are struggling, shows a resilient business model.
–Anurag Rana, Senior BI Industry Analyst
Click here to read the investigation.
The Mac rebounded in the fourth quarter, with sales setting a record for that period. The category was driven by a redesigned MacBook Air and a new entry-level 13-inch MacBook Pro, Apple’s two most popular computers.
On the call, Maestri said the Mac had a stronger-than-usual quarter in last year’s holiday quarter due to the redesigned 14-inch and 16-inch MacBook Pros. Those were Apple’s first high-end laptops built with its own processors, replacing chips from Intel Corp. That kind of change won’t be repeated this holiday period.
The company’s wearables, home and accessories segment, which includes the Apple Watch, AirPods, TV box, HomePod, Beats headphones and other accessories, also saw a boost last quarter. Apple made $9.65 billion from those products, exceeding expectations.
In September, the company released the second-generation Apple Watch Ultra and AirPods Pro headphones. A new Apple TV with a faster chip will go on sale in early November.
Apple signaled in its previous quarterly report that it would be more cautious about spending, as part of a broader slowdown for Silicon Valley companies. Unlike some peers, Apple has avoided mass layoffs. But he plans to cut spending in 2023 and slow hiring, Bloomberg News reported. “Obviously we are being deliberate in our decisions about where to invest,” CEO Tim Cook said in July.
–With assistance from Nate Lanxon.
(Add the closing price of the stock in the first paragraph)
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