Club name Apple (AAPL) posted a better-than-expected June quarter after the closing bell Thursday, with strong Services sales more than offsetting a slight miss on the Products front. Revenue in Apple’s fiscal third quarter of $81.8 billion edged down 1% but edged out expectations of $81.69 billion. Foreign exchange fluctuations were a headwind of nearly 4 percentage points. Earnings per share of $1.26 rose 5% compared to a year ago and exceeded the Refinitiv consensus estimate of $1.19. Gross margin was 44.5%, expanding 126 basis points from a year ago and coming in slightly above the 44.3% estimate. (One hundred basis points (bps) equals 1 percentage point.) Apple shares fell about 2% in after-hours trading to around $187, likely due to profit-taking. The stock was still, however, within shouting distance of last month’s all-time high of $198.23 per share. AAPL YTD mountain Apple YTD performance Bottom line Nothing to see here, just Apple doing what it does: outpacing expectations while announcing a record installed device base across all geographies and an all-time quarterly sales record for Services — the high-margin, recurring revenue business that serves to support a higher valuation multiple. Products sales did miss the mark, and investors are likely using that as an excuse to sell shares after their recent strong rally. However, as we’ve noted before, the installed base represents the outlet for Apple’s higher margin, recurring revenue Services business. As a result, we place more importance on the total installed base than we do on the number of units sold in any given three-month period. That strong Services performance, thanks to a gross margin profile that’s essentially double what we see in Products, helped Apple report better-than-expected gross and operating margin performance. We didn’t get too much on the recently announced mixed reality Vision Pro headset, which was excepted. However, management did say, “Everybody that’s been through the demos are blown away, whether you’re talking about press or analysts or developers. We are now shipping units to the developer community for them to begin working on their apps. And we’re looking forward to shipping early next year.” The fact that the headset is already in developers’ hands is a positive as the one thing any new computing platform needs, especially one priced as high as Vision Pro (starting at $3,499), is killer apps. The more time developers have to work on apps before the launch, the more excitement Apple can generate ahead of the launch, which is expected early next year. In the end, Apple’s fiscal Q3 gives us great confidence in reaffirming our own-it, don’t-trade view of the stock. As we are now in the back half of 2023, we are looking to next year and raising our price target to $205 per share from $185. That reflects a stock valuation of about 31 times Apple’s fiscal 2024 earnings estimates. Cash flow & capital allocation In its June quarter, Apple generated operating cash flow and free cash flow results that were well above what the Street was looking for. At the same time, Apple returned over $24 billion via buybacks and dividends. Apple exited the quarter with over $166 billion in cash, equivalents and marketable securities on the balance sheet. After subtracting out $109 billion of debt, we’re left with a net cash position of about $57 billion. As a reminder, Apple has a policy of being so-called net cash neutral over time, meaning that if the cash isn’t used for acquisitions or organic growth investments, it’s returned to shareholders through buybacks and dividends. Quarterly commentary While Products sales came up a bit short, gross income of $21.49 billion from the segment was much closer to the market, thanks to strong gross margin performance of 35.4%, as seen in the earnings table above. On the other hand, despite a slightly lower-than-expected Services gross margin of 70.5%, gross income of $14.97 billion for the unit managed to outpace expectations due to those record sales. In the Products category, iPhone sales for the quarter of $39.67 billion were down from a year ago and missed estimates. However, management noted that sales were actually up on a constant currency basis. Equally encouraging in terms of demand, management said it was “a June quarter record for iPhone switchers.” Mac sales declined in the quarter to $6.84 billion but exceeded estimates. Management reminded investors that the lineup is now entirely run on Apple silicon, adding that “this transition has driven both strong upgrade activity and a high number of new customers. In fact, almost half of Mac buyers during the quarter were new to the product.” iPad revenues were down materially as we lapped “the full quarter impact of the iPad Air launch in the prior year,” the company said. Nonetheless, Apple continues “to attract a large number of new customers to the iPad install base with over half of the customers who purchased iPads during the quarter being new to the product.” Quarterly iPad sales were $5.79 billion. In the Wearables, Home, and Accessories segment, which was relatively flat year-over-year and a shade lower than estimates, management said it was a June quarter record for Greater China with “strong performance in several emerging markets.” The team also said, “We continue to see Apple Watch expand its reach with about two-thirds of customers purchasing an Apple Watch during the quarter being new to the product.” Services , a high-margin business for Apple, reached a new all-time revenue record with year-over-year growth accelerating to 8% “and up double digits in constant currency.” In addition to calling out the over two billion active installed device base, management highlighted “increased customer engagement” as both transacting accounts and paid accounts were up double digits versus the year-ago period to all-time highs. “This past quarter, we reached an important milestone and passed $1 billion in paid subscriptions across the services on our platform, up 150 million during the last 12 months and nearly double the number of paid subscriptions we had only three years ago,” said the team. Geographically, it was a fiscal third quarter of records in both Europe and Greater China , with the latter going from down 3% year-over-year in the March quarter to up 8% in the June quarter. The Americas were down 5.6%. Guidance For the current September quarter, Apple expects year-over-year revenue performance to be similar to the June quarter, assuming no worsening macro outlook. Foreign exchange will still be a headwind but improving sequentially, with the team estimating a negative year-over-year impact of over 2 percentage points. Both iPhone and Services revenue growth is expected to accelerate versus the June quarter, however, both iPad and Mac sales are expected to be down double digits annually “due to difficult compares, particularly on the Mac.” That iPad commentary implies a greater annual decline than analysts had expected, however, everything else appears to be largely in line. Gross margin for the September quarter is expected to be between 44% and 45%, which even on the low end is better than the 43.6% estimate coming into the print. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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Club name Apple (AAPL) posted a better-than-expected June quarter after the closing bell Thursday, with strong Services sales more than offsetting a slight miss on the Products front.