Key takeaways from Apple’s (AAPL) Q3 2023 report

Apple Inc. (NASDAQ: AAPL) last week reported stronger-than-expected results for the third quarter when the gadget giant’s revenues declined slightly, hurt by lower iPhone sales. Earnings rose modestly aided by better margin performance, mainly due to continued strong performance by the fast-growing services business.

The Stock

Apple’s stock peaked ahead of the earnings but lost steam since then and has pared a part of the recent gains. It has lost about 10% since hitting record highs last week. Interestingly, it is estimated that there is still room for AAPL to grow despite the strong gains, with experts predicting double-digit gains that would drive up the stock beyond the $200 mark.

Apple’s healthy cash position allows it to continue returning capital to shareholders – a whopping $24 billion was returned in the most recent quarter—while also making significant investments in long-term growth plans. The company entered the final quarter of the fiscal year with more than two billion active installed devices, a key metric the company has been highlighting lately as its brand loyalty among customers continues to grow.

On Track

The tech firm is reportedly preparing to unveil the latest version of iPhone in mid-September. The launch of iPhone 15 will be a closely followed event since the smartphone is the company’s main revenue driver. Moreover, the market’s response to the new variant is expected to give a sense of consumers’ spending habits. It is likely that the strain on sales and profitability would ease in the September quarter, coinciding with the iPhone rollout, while the other products are expected to benefit from the recovery in the PC market.

Apple’s earnings beat estimates for two consecutive quarters after falling short of expectations in the December quarter, which marked the first miss in more than six years. Revenues also exceeded expectations in the last two quarters. In the June quarter, a decline in iPhone sales more than offset continued gains by the services segment – with record high revenues — and higher wearables & accessories sales.

From Apple’s Q3 2023 earnings call transcript:

“We set June quarter records in both Europe and Greater China and continue to see strong performance across our emerging markets driven by iPhone. Products revenue was $60.6 billion, down 4% from last year, as we faced FX headwinds and an uneven macroeconomic environment. However, our installed base reached an all-time high across all geographic segments, driven by a June quarter record for iPhone switchers and high new-to rates in Mac, iPad, and Watch, coupled with very high levels of customer satisfaction and loyalty.”

Mixed Bag

At $82 billion, third-quarter revenues were down 1% year-over-year, hurt by a decline in the sales of iPhone, Mac, and iPad. Earnings, meanwhile, moved up to $1.26 per share from $1.20 per share last year. A marked sales growth in China, the company’s biggest market after the US and Europe, was more than offset by slowdown in other regions. In the first half of the year, the company generated around $89 billion in cash from operating activities.

Apple’s stock closed the last trading session lower and extended the weakness in the early hours of Monday. It is up an impressive 42% since the beginning of the year.