Apple (Nasdaq: AAPL) delivered better than expected earnings in its fiscal Q3 which sent shares higher by more than 3%. The earnings report was highly anticipated by Wall Street given the company's weight in major indices, and its read on consumers.
One note of concern for the company was a slowdown in iPhone sales which is an indication that its period of secular growth may be over. However, investors were buoyed by CEO Tim Cook's assertion that revenue would likely accelerate in September, although it didn't issue any guidance for the upcoming quarter due to uncertainties around supply chain issues and sales in China.
Inside the Numbers
In its fiscal Q3, Apple reported $1.20 in earnings per share, edging out estimates of $1.16 per share in earnings. This was an 8% decline from last year. Revenue also exceeded expectations at $83 billion vs $82.8 billion, a 2% increase from last year. This is a sharp slowdown from its 36% growth in 2021's Q3 and 8% growth in the last quarter.
iPhone revenue continued to make up the largest share of revenue and accounted for $40.7 billion which exceeded estimates of $38.3 billion, a 3% increase from last year. Services revenue saw a 17% increase and also beat analysts' expectations at $19.6 billion.
This continues to be Apple's fastest-growing major segment and is particularly appealing to investors because it's higher-margin and 'stickier'. This was a major factor in Apple's gross margin beating expectations at 43.3% vs 42.6%. Overall, it has 860 million paid subscriptions which encompasses apps and Apple products like iCloud and Apple Music.
While Apple has not given guidance since the pandemic started, analysts are expecting $1.31 in EPS and $90 billion in revenue next quarter. A major factor in its stock price's gain was CEO Tim Cook's confidence that revenue was accelerating in Q3 even after acknowledging some 'pockets of softness'.
In a sense, it's impressive that Apple was able to maintain positive growth despite weakness in consumer tech which was evident in the results of companies like Intel and other chipmakers. This also isn't too surprising given that so much demand was 'pulled forward' during the pandemic. Mac sales were down 10% compared to last year.
Apple continues to see inflation as a major challenge. It noted cost increases in logistics, wages, and computer chips. The company continues to hire but has slowed the pace. The stronger dollar also weighed on results. It said that about $4 billion in potential revenue was not realized due to a parts shortage which caused longer lead times for PCs and laptops.