Apple (AAPL) — Earnings Review — February 3, 2024

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Apple (AAPL) — Earnings Review — February 3, 2024

Apple beat overall revenue estimates by 1.4% and its guidance by 2.0%. Its 7.4% 3-year revenue compounded annual growth rate (CAGR) compares to 11.4% last quarter and 11.0% 2 quarters ago.

  • Iphone beat expectations by 4%. Wearables beat expectations by 4.4%. Mac slightly missed expectations. iPad missed expectations by 4.2%.
  • China revenue (key focus area for Apple) was 11.5% worse than expectations.
  • Services revenue missed expectations by 0.9%. Product revenue beat expectations by 2.0%.

Apple also beat 45.5% gross profit margin (GPM) estimates and its identical guide by 40 basis points (bps; 1 bps = 0.01%). It beat earnings before interest and tax (EBIT) estimates by 3.2% and beat $2.11 GAAP earnings per share (EPS) estimates by $0.07. EPS rose 16% Y/Y during the quarter.

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Balance Sheet

  • $173 billion in cash & equivalents.
  • $108 billion in total debt.
  • Share count fell 2.4% Y/Y.

It remains committed to bringing its net cash position from $65 billion to $0. The buyback machine will continue to hum.

Guidance & Valuation

Apple expects to maintain 11% Y/Y services growth next quarter (13% FX neutral growth). This implies $23.2 billion in services revenue. In last year’s March quarter, it enjoyed the end of supply chain disruptions and the fulfillment of pent-up iPhone demand. This added $5 billion to iPhone and overall product revenue. It expects Y/Y product revenue to be flat excluding this $5 billion. This implies $68.9 billion in product revenue. 

All in all, its revenue guidance is $92.1 billion. This missed expectations by about 1%. This also implies about $46.3 billion in next quarter iPhone revenue, which is 7.4% below expectations. Apple also expects a 46.5% GPM, which is 50 bps better than expected. Finally, its EBIT guidance missed expectations by 1.1%.

Apple trades for 23x 2024 EPS and 26x 2024 free cash flow (FCF). EPS is expected to grow by 7.4% Y/Y and FCF is expected to grow by 9.3% Y/Y.

Call & Release Highlights

Segment & Geographic Performance:

There are two strange comp items to note for this quarter. First, the prior-year quarter had one extra week. Second, pandemic-related shutdowns in the Y/Y period hit demand and made iPhone and product revenue comparisons easier this quarter. Taken together, the net impact was -200bps on its Y/Y revenue growth rate.

By product segment:

iPhone revenue rose 6% Y/Y. The new iPhone 15 lineup has a 99% satisfaction rate, per 451 Research. Per Kantar research, Apple has 4 of the 5 top models in the USA and Japan, the top 5 in Australia and 4 of the top 6 in China. Mac revenue rose slightly Y/Y. The new Macs are equipped with Apple’s latest line of semiconductors and are receiving a 97% satisfaction rate in the USA, per 451 Research.

Wearables, Home and Accessories shrank 11.4% Y/Y. Note that this quarter is comping vs. a period in which it launched its new line of AirPods and watches. Notably, 2/3 of all new watch customers this quarter were brand new to the product; these watches have a 96% satisfaction rate per 451 Research. iPad revenue fell 12.8% Y/Y. Similarly to the wearables category, this was related to launching its new model in the prior year period. For both segments and all others, losing the extra week hurt too. iPad’s satisfaction rate sits at a lofty 98%.

By Geography:

  • Americas revenue rose 2.3% Y/Y.
    • EBIT margin was 40.4% vs. 36.3% Y/Y.
  • Europe revenue rose 9.8% Y/Y.
    • EBIT margin was 41.8% vs. 36.2% Y/Y.
  • Great China revenue fell 13% Y/Y.
    • EBIT margin was 41.4% vs. 43.6% Y/Y.
  • Japan revenue rose 15% Y/Y.
    • EBIT margin was 49.2% vs. 47.9% Y/Y.
  • Rest of Asia Pacific rose 6.5% Y/Y.
    • EBIT margin was 45.1% vs. 40.4% Y/Y.
  • Revenue rose “double digits” across most emerging markets.

Revenue set new all-time highs in Europe and December quarter records in India and Mexico as well as a few other emerging markets.

“We’ve been in China for 30 years. I remain very optimistic about China over the long term.” – CEO Tim Cook

Services, Subscriptions & the Install Base:

Paid subscriptions rose double digits Y/Y to grow further beyond 1 billion total paid subscribers. Growth here has compounded at about 20% CAGR over the last 4 years. Transacting and paid accounts reached new highs with paid accounts also up 10%+ Y/Y. Overall, its install base reached 2.2 billion active devices. This leaves significantly more opportunity for continued subscription up-sells. For the quarter, advertising, cloud, payments and video revenue set new records. This isn’t a surprise, considering these are supposed to be the growth products at Apple.

Vision Pro & AI:

Apple never shows its cards about product innovation or releases. It is the master of keeping a tight lid on everything it’s doing. Leadership told us the Vision Pro is “years ahead of anything else,” which I’m sure Meta would disagree with, and that they’re excited about the opportunity. We learned that Walmart, Nike, Vanguard and SAP are among the first enterprises building apps for this device. Similarly, on AI, it told us that it will host an event on the topic later in 2024. Nothing else was mentioned. They tell us what they have to… nothing more, nothing less.

“Our MO, if you will, has always been to do work and then talk about work and not to get out in front of ourselves.” – CEO Tim Cook


December is its best revenue quarter, which naturally drives operating leverage and improving margins Q/Q. Still, that doesn’t explain the strong Y/Y margin expansion. That’s being driven by services growth and strong demand for the iPhone 15’s higher-priced models.

Enterprise Customers:

  • Target added MacBook Pros for thousands of its corporate staffers.
  • Zoho in India gave its 15,000 employees a choice of laptop models. 2 out of 3 chose Mac.


This was a fine, but somewhat messy quarter. Concerns stemming from the report centered around China regulation and competition; the light revenue guidance added to the anxiety. With that said, Apple is an iconic company. It has a fortress ecosystem, a fiercely loyal user base and arguably the best corporate balance sheet on the planet. There remains ample opportunity to sell more services to juice margins. Was this quarter perfect? No it was not. That doesn’t change the fact that it’s Apple’s world and North America is just living in it. Something about that blue text bubble is just so comforting… I continue to deeply admire this company. At the same time, I don’t find the valuation compelling based on the expected multi-year profit growth. Regardless of what I think, the stock is up almost 400% in 5 years and the brand remains world-class.

Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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