Apple Reports Slight Decline in Revenue But Record Earnings in Q1 FY19

The first quarter of fiscal year 2019 was a mixed bag for the tech giant.

Subscription News: Apple Reports Slight Decline in Revenue But Record Earnings in Q1 FY19

Source: Apple

On Tuesday, Apple [NASDAQ: AAPL] reported mixed results in its first quarter financials for fiscal year 2019. The company had $84.3 billion in quarterly revenue, a 5 percent decline year-over-year, missing the company’s estimates for the quarter. The company’s earnings, however, hit a new record for the company at $20.0 billion, or $4.18 diluted earnings per share, a 7.5 percent increase year-over-year.

On the January 29 earnings call, transcribed by Seeking Alpha, Apple CEO Tim Cook attributed the revenue decline compared to guidance to four factors: different iPhone launch timing, foreign exchange rates, supply constraints on some products and changing economic conditions in emerging markets, particularly in Greater China. In Greater China, revenue was down $4.8 billion with declines in iPhone, Mac and iPad sales. However, the company had record services revenue in Greater China with more than 2.5 million registered iOS developers.

“While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide,” said Cook in a January 29 news release. “Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments. That’s a great testament to the satisfaction and loyalty of our customers, and it’s driving our Services business to new records thanks to our large and fast-growing ecosystem.”

“We don’t measure our success in 90-day increments. We manage Apple for the long term and when we consider the keys to our success over time there are three that stand out, our highly satisfied and loyal customers, our large and growing active installed base and at the heart of it all, our deeply ingrained culture of innovation. Thanks to all this our ecosystem is stronger than ever before,” said Cook on the earnings call.

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Other highlights from the quarter include:

  • International sales made up 62 percent of the company’s revenue for the quarter.
  • Revenue from other products and services grew 19 percent.
  • Services revenue hit a record $10.9 billion, a 19 percent increase year-over-year, with all-time records in the App Store, Apple Pay, cloud services and App Store search ad business.
  • Revenue from Mac and Wearables grew 9 percent, and Home and Accessories revenue grew 33 percent, also records for the company.
  • Revenue from iPad grew 17 percent year-over-year.
  • The company had total operating expenses of $8.7 billion, compared to $7.7 billion for the same period last year.
  • As of December 29, 2018, the company had $86.4 billion in cash, cash equivalents and marketable securities.
  • The company’s board declared a cash dividend of $0.73 per share, payable on February 14 to shareholders of record on February 11.

Of particular note is the success of Apple Music. According to Cook on the earnings call, Apple had the highest quarterly music revenue ever. He attributed that success to the popularity of Apple Music, the company’s subscription streaming music service which now has more than 50 million paid subscribers.

Subscription News: Apple Reports Slight Decline in Revenue But Record Earnings in Q1 FY19

Source: Apple

Over the holidays, consumers used Apple Pay to complete more than 1.8 billion transactions, double the volume from the prior year period. Though not included in the quarterly results, Cook said that customers spent $322 million in the App Store on New Year’s Day, setting a single-day record for the number of customers and purchase volume.

CFO Luca Maestri also commented on the company’s performance for the quarter: “We generated very strong operating cash flow of $26.7 billion during the December quarter and set an all-time EPS record of $4.18. We returned over $13 billion to our investors during the quarter through dividends and share repurchases. Our net cash balance was $130 billion at the end of the quarter, and we continue to target a net cash neutral position over time.”

Apple provided the following guidance for the second quarter of fiscal year 2019:

–      Revenue between $55 billion and $59 billion

–      Gross margin between 37 percent and 38 percent

–      Operating expenses between $8.5 billion and $8.6 billion

Investors did not have a significant reaction to the news, though Apple’s stock price dipped slowly after the report. On January 28, the day before the financials report, Apple stock was valued at $156.30 per share. At the end of the day January 29, Apple stock had dropped slightly to $154.68. Yesterday, it was already rebounding, valued at $161.80 per share as of 9:41 AM EST, January 30. This is still below Apple’s value a year ago – January 30, 2018 – when it was valued at $166.97 per share. The company’s 52-week high is $233.47 last October.

Subscription News: Apple Reports Slight Decline in Revenue But Record Earnings in Q1 FY19

Source: Apple

Insider Take:

While Apple didn’t have a perfect quarter, missing its revenue guidance, it was still very strong in the majority of categories. It posted record revenue and record subscribers for Apple Music, all contributing to the company’s short- and long-term success. Apple stock took a slight hit, but that is likely to rebound, as we’re already seeing. No big surprises here.