On Tuesday, Apple (NASDAQ: APPL) reported record services revenue of $11.5 billion for the second quarter of its fiscal year 2019, for the period ended March 30, 2019. Total revenue for the period was $58 billion, down 5 percent year-over-year. Quarterly earnings were $2.46 per diluted share, down 10 percent year-over-year. Services revenue, which includes subscription revenue, now comprises 19.8% of Apples total revenue, a strategic shift that allows the tech giant to rely less heavily on products. Product revenue made up the balance of revenue at $46.6 billion.

Despite the decrease in total revenue and earnings, CEO Tim Cook positioned the earnings report in a positive light.

Our March quarter results show the continued strength of our installed base of over 1.4 billion active devices, as we set an all-time record for Services, and the strong momentum of our Wearables, Home and Accessories category, which set a new March quarter record, said Cook.

We delivered our strongest iPad growth in six years, and we are as excited as ever about our pipeline of innovative hardware, software and services. Were looking forward to sharing more with developers and customers at Apples 30th annual Worldwide Developers Conference in June, Cook added.

Subscriptions were a big part of the company’s Services success this quarter.

“We reached a new high of over 390 million paid subscriptions at the end of March, an increase of 30 million in the last quarter alone. This was also an incredibly important quarter for our Services moving forward. In March, we previewed a game-changing array of new services, each of them rooted in principles that are fundamentally Apple,” Cook said on the earnings call. “They’re easy to use. They feature unmatched attention to detail. They put a premium on user privacy and security. They’re expertly curated, personalized, and ready to be shared by everyone in your family.”

Cook also talked up Apple News, which he said is the number one news app in the U.S. and U.K. Apple News+ is a subscription variation of Apple News, and initial reviews have been mixed, but as Apple develops new relationships with publishers and smooths out the bugs, it could improve.

Financial highlights from the earnings report include the following:

• Operating cash flow was $11.2 billion.
• Operating expenses were $8.4 billion.
• Net income was $11.6 billion, compared to $13.8 billion year-over-year.
• The company declared a cash dividend of $0.77 per share of common stock to shareholders of record as of May 13, 2019.
• Apple returned $27 billion to shareholders through share repurchases and dividends.
• The board authorized an additional $75 billion to repurchase shares.

Operational highlights included the company’s best quarter ever for the App Store, Apple Music cloud services and App Store search ad business. Also, Apple set new revenue records for AppleCare and Apple Pay. Transaction volume for Apple Pay doubled year-over-year, and the company is expecting 10 billion transactions in the calendar year. The service is currently available in 30 markets, but Apple wants to grow to 40 by year end.

Apple offered the following guidance for its third quarter of fiscal year 2019:

• Total revenue between $52.5 billion and $54.5 billion
• Other income/expense of $250 million
• Operating expenses between $8.7 billion and $8.8 billion
• Gross margin between 37 percent and 38 percent

On Monday, April 29, the day before the earnings report, Apple stock was valued at $204.61 per share. It dropped to $200.67 on April 30. As of 7:59 p.m. Eastern yesterday, it had rebounded to $210.52 per shre, a $9.85 bump.

Insider Take:

Like all big tech companies, Apple has a lot of products, services and moving parts. It has made some significant changes to its product and service mix, and it is adapting to how those change its business model and financial results. Perhaps the biggest changes are the company’s payment services and the new subscription services Apple is adding to the mix – Apple News+, Apple TV+ and Apple Arcade. As we said before, this switch will allow the company to become less reliant on products and more dependent on subscription services which could provide them with reliable recurring revenue – provided they execute well. This will be a pivotal year for Apple as they roll out all of these new products.