Revenue and earnings were expected to fall year-over-year. And they did. More than feared.
Apple missed on the top and bottom lines, as the expectation that iPhone sales would fall came true. Mac and Wearable revenues were also down. Services was up, but barely. The quarter's 14th week couldn't save the results.
Apple shares, which closed up more than 3.7%, rose briefly in after-hours trading, nosedived more than 4%, rebounded during the earnings call and finally fell back nearly to where they started the day.
From the press release:
Apple today announced financial results for its fiscal 2023 first quarter ended December 31, 2022. The Company posted quarterly revenue of $117.2 billion, down 5 percent year over year, and quarterly earnings per diluted share of $1.88.
“As we all continue to navigate a challenging environment, we are proud to have our best lineup of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do,” said Tim Cook, Apple’s CEO. “During the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”
“We set an all-time revenue record of $20.8 billion in our Services business, and in spite of a difficult macroeconomic environment and significant supply constraints, we grew total company revenue on a constant currency basis,” said Luca Maestri, Apple’s CFO. “We generated $34 billion in operating cash flow and returned over $25 billion to shareholders during the quarter while continuing to invest in our long-term growth plans.”
Apple’s board of directors has declared a cash dividend of $0.23 per share of the Company’s common stock. The dividend is payable on February 16, 2023 to shareholders of record as of the close of business on February 13, 2023.
Tune into the earnings call here.
No formal guidance, given all the uncertainties. Expect COVID and fx to not worsen. Revenue in the March quarter should be similar to December YOY, without the extra week. FX should still be a headwind of about -5 percentage points. Services should grow YOY. iPhone should accelerate YOY. Mac and iPad could drop double digits. Expect Gross margins between 43.5%-44.5%
Cue the charts...
That’s pretty impressive, considering supply challenges.
FX headwinds
Covid-related challenges
Macro-economic negatives
On a constant-currency basis, iPhone income was nearly flat
Macs were in-line with expectations
iPad revenue grew
The Other category suffered from FX headwinds
More than 2 B actively installed devices
Better than expected Services
All eyes on Q2 now 😉
(Independent of that, I’ve always been surprised that books are significantly more expensive in the UK.)
Emerging nation installed base grew double-digits.
Over half of all iPads sold in the quarter were new to iPad.
In constant currency, Services grew double-digits.
Spent $19 B, and 133 M Apple shares bought back.
March quarter is expected to be SIMILAR to December!!! That would be a HUGE increase YOY!
The dividend spend is on target.
“$19B is significantly less…133M shares is about 14% less than usual.”
THAT surprised me!
Margin will expand for March.
FX is mitigating – still about half of last quarter.
You may be right, but – the problem with that interpretation is that it pretty much flies in the face of the whole body of the earnings report. For example, GM was great, but it’s going to get even better this quarter. Also, December saw a huge turnaround in China demand – just in time for Chinese New Year. And FX is “mitigating”; 50 basis points expected this quarter as opposed to 100+ basis points last quarter. Also, in constant currency, Services grew double-digits. Finally, installed base across all segments grew, but emerging nation installed base grew double-digits.
I had the same question about the comments on the March quarter. I couldn’t tell if Luca was saying March would have the same decline as December or something else.
“What’s the word on March quarter guidance?”
The quarter is expected to come close to equalling this quarter. IOW, a very good quarter indeed.
It is not clear to me that was what was meant. If I am looking at the correct quarter, that would mean about a 20 billion dollar increase in revenues. Personally, what I thought he meant was that there would be a similar decrease in the quarter but I am not sure.
We’ll have to wait for the replay, but I’m pretty certain I heard that it was going to have similar earnings to last quarter. I think a LOT of us are going to be listening to that particular point very closely. It came quite early on, in the general summation by Luca.
Apple is really firing in places like Thailand and Singapore (small market I know) but I also hear Vietnam (serious growth market) is doing really well.
The number of people in Thailand working in hospitality and travel services whose annual income is probably less than USD$10K holding an iPhone Pro and wearing a late model Apple Watch defies logic. (no they weren’t fake like their handbags)
150 M increase in installed base YOY.
“Revenue and earnings were expected to fall year-over-year. And they did. More than feared.”
The relatively muted drop after the earnings came out implies the market didn’t fear numbers like this. More a buy on the rumor sell the news event for now. The reaction during the earnings call is relatively positive talking about the March quarter. Given the selling action of the stock in December I would say this overall reaction is better than feared not worse. Still disappointing but seemingly similar reaction to Google and Amazon misses.
I’m personally pretty sure that Apple does a “blackout” and only uses ASR’s during the month before earnings for buybacks, Assuming no ASR’s, 133 M over ~8.5 business weeks or ~43 business days would equal ~3 M shares/day bought back. But the “average” shares traded is presently ~78 M, so that’s still only ~4% of the daily average, even if I’m right about the blackout. It’s supportive of the stock price, but only lightly so.
The impact of currency movements will likely be a focus of every armchair analyst now and everyone will suddenly become an fx expert.
Nice reaction to crappy numbers. Well curated responses on the call.
CAGR = 10.4%
I think installed base is in part why it “reversed” after-hours, but the big one was the pretty strong guidance for a good March quarter. Basically, it appears those sales DID get pushed forward!
Per Tim, Apple has a large market and a low percentage share.
to me the most important remark of the call.
Future growth of Apple will be there and other mentioned emerging market countries.
with supply chain up and running and weaker dollar i foresee a quick return to growth.
nothing is more negative for sale than short supply
also covid lockdowns in china were horrible.
i think the street is too much focused on USA and under values asia and latino markets.
billions of customers whithout money with only one wish to own an iphone.
they are dreaming of iphones not of samsungs or chinese brands.
its only a matter of time they will earn enough money to purchase an iphone.
Maybe it’s ethnocentrism at work, or it’s pure racism (my favorite), but I definitely think WS looks at anywhere not in Manhattan, London or Paris as being an undeveloped third world country.
The commentary about iPhones in China, when Apple first opened that market was very negative with the focus being on average annual income per capital vs the culture of saving to get what you want. WS is doing the same thing in India, SE Asia and South America.
It won’t be all that long before the US is the world’s third largest economy, with China and India battling it out for #2.
I say good for them.
Perhaps the best way to look at it is demand was relatively steady but supply was disrupted and could not fill that demand, at least iPhones. Mac sales were lower but did not have a new product intro as motivation. iPads had a good showing on the basis of new models and performance. Services was a bright spot, held back a bit by Fx. Troubling to me was the drop in Wearables Home and accessories. This area is more price sensitive and reflects Fx and subdued demand even with new products.
935 million paid subscriptions across the services on our platform, up more than 150 million during the last 12 months….
Music to my ears.
https://www.youtube.com/live/I2Hz7_B1TK0?feature=share
It’s unclear how many shares their repurchase plan could have purchased during the Jan month, especially when the prices were $135 and below during the first 20 days of the month.
“It’s unclear how many shares their repurchase plan could have purchased during the Jan month…”
ASR’s need to be committed to beforehand. And while the month started in the gutter, it steadily climbed from there. Assuming the ASR’s were designed to purchase throughout January, the “average” would once again come pretty close to that $142 average price you mentioned were bought during the December quarter.
https://www.apple.com/investor/earnings-call/
I interpret it exactly the opposite. Luca says:
“…that represents an acceleration in the underlying year over year business performance, since the December quarter benefitted from an extra week.”.
That term “acceleration” is obviously referring to revenue, since the only way March can match December’s revenue is to “accelerate” the revenue over the shorter time span. Ergo, it’s not a percentage similarity, it’s a revenue similarity.
He also says this later:
“For iPhones, we expect are March quarter year over year revenue performance to accelerate relative to the December quarter year over year revenue performance.”
But that said, I have to admit; it’s interpretable in either direction. And the pattern over years shows us that, at least since they moved the iPhone release closer to the holidays, the March quarter has always been decidedly weaker than the December quarter.
I certainly wouldn’t bet the house on my interpretation being the correct one….
I just listened to that part of the call again and found that Luca used some kind of word soup that made it difficult to really interpret what was really meant. Maybe that was his intention. There were a couple of things in there that sounded positive(like using the word acceleration and talking about the extra week in the past quarter) but then the comparison to last quarter sounded negative. So that is really a toss up for me. I may try to listen again tomorrow and see if it hits me differently.
That being said, I have to wonder why not one of the analysts on the call asked for clarification.
“We believe iPhone would have grown for the quarter if it wasn’t for the supply issue”
-TIM COOK
“Production is now back where we want it to be.”
-TIM COOK
“Apple now has more than 935 million paid subscriptions.” -TIM COOK
“We now have more than 2 billion active devices as part of our growing installed base.” -TIM COOK
BOTTOM-LINE:
The charts clearly show it was a tough YoY compare – because of temporary supply chain issues. No surprise there. I stress temporary.
The bigger picture is phenomenal. Apple is generating a ton of cash even in a so-called “awful” ER.
Awful”? By whose interpretation?
For Chinese OEM’s, it’s harder because of heavy and recurrent clashes and Sabre rattling with the Chinese government and military. For Apple, the US and California in particular represent opportunity, prosperity, and yes, a level of freedom from the norm. An iPhone, a Watch, AirPods (even if made in Vietnam), and a Mac can be an aspirational move to a California / US lifestyle, if just in theory. But come to the US for education and / or work, and you may have a lifelong relationship.
As Gregg said, I wish them well and all successes.
It is not clear and we may never know whether with full production whether iPhones revenue would have approached or surpassed Q1 2022’s $71.63B and helped this recent quarter to a much more decent showing. Certainly the Mac and WHA numbers and FX headwinds still made it difficult.
Back in 2019, when Apple missed big out of the blue, I checked their growth trajectory stripping out the “tough compare” of a year prior and the 2 year growth rate was 10% or so, giving me comfort, and able to ride the subsequent 2019 and beyond rally without selling shares. Similar setup this time as you point out, let’s hope a similar rally realized this time.
Without the supply constraint and fx Apple would have beat comfortably.