Categories Analysis, Technology

Apple’s Q3 earnings hint at iPhone’s return to the growth trajectory

Apple crushed Q3 revenue and earnings estimates, stock touches record high

Despite Apple’s (NASDAQ: AAPL) strong stock market run, weakness on the product side has been a prime concern for many investors. Given that iPhone makes up almost half of Apple’s revenue mix, the flagship product’s robust sales is imperative for continued overall growth.

These apprehensions were eliminated to some extent when the technology giant reported third-quarter results on Thursday. In Q3, Apple’s iPhone sales were up 1.7% year-over-year at $26.4 billion, which the management attributed to strong demand for the recently launched iPhone SE. Apple claimed the economic stimulus packages have also helped bolster iPhone sales in Q3.

Apple Q3 2020 earnings infographic

During the post-earnings conference call, CEO Tim Cook said, “The iPhone SE, it’s also clear that from the early data we’re seeing a higher switcher number than we did in the previous year, which we feel very good about. iPhone 11 is still the most popular smartphone, but iPhone SE definitely helped our results. And as Luca (Maestri) said in his outlook, we do see that continuing into this quarter currently.”

To appease the higher-end market, the company is set to launch the next line-up of iPhones this quarter. The upcoming iPhones, along with a high-demand SE, could once again bring the limelight back to the product side. However, the company will delay the launch of the next line-up of iPhones by a few weeks. Apple generally launches its line up in September.

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Stock at record high

Shares of the technology giant moved higher by 6.4% in after-hours trading on July 30 after it reported fiscal third-quarter results. Apple stock is currently trading at $409.55, indicating a market cap of $1.77 trillion dollars. Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) trails strongly with market caps of $1.59 trillion and $1.51 trillion respectively.

Apple reported Q3 revenue of $59.7 billion with earnings per share of $2.58. This was significantly higher than Wall Street revenue and earnings estimates of $52.25 billion and $2.04 respectively. Its EPS grew 18% while sales were up 11% year-over-year and the company generated operating cash flow of $16.3 billion.

apple iphone revenue trend

Cook said that record Q3 sales were driven by double-digit growth in Products and Services in each of its geographic segments. Despite an uncertain macro environment, Apple has managed to hold its own and Cook commented, “….this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation.”

Apple’s Services business is its second-largest segment and sales rose 14.8% to $13.1 billion. The company had targeted to double 2016 Services revenue by the end of fiscal 2020. However, it managed to achieve this target six months ahead of schedule.

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Dividend and stock split

We can see why Apple shares soared higher in after-hours trading to touch a record price. The company not only managed to easily crush Wall Street estimates amid a highly uncertain economic environment, it also remains bullish about the upcoming quarters.

While sales were impacted in April, demand for most products improved in May and June. The installed base of active bases touched an all-time high in all segments across all categories. The tech giant expects Q4 to see the same trends as the June quarter with the exception of Apple Care.

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For more updates about Apple, read the full earnings call transcript here.

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