Apple Inc.’s (NASDAQ/AAPL) share price tumbled as much as seven percent in early trading on Wednesday July 22nd. Why? The company just came out with its earnings.
The headline numbers look great. Revenue came in at $49.6 billion, a 33% increase year-over-year. Net profit was $10.7 billion, translating to earnings of $1.85 per share. That was a 44.5% increase in earnings per share (EPS)! (Source: Apple, July 21, 2015.)
Moreover, Apple’s key financial metrics also beat analysts’ expectation of $49.0 billion in revenue and $10.3 billion in profit.
Tim Cook, CEO of Apple, was very pleased with the results. “We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch.”
Region-wise, Apple’s revenue was up in every one of its markets. Greater China reported the fastest growth, with revenue skyrocketing 112% year-over-year to $13.0 billion. Europe, the Americas, and the rest of Asia Pacific also edged up with double-digit growth in revenue.
Apple’s cash position was still solid and humongous. By the end of the reporting quarter, the company had $202.8 billion in cash and marketable securities, 89% of which was offshore.
For the fourth quarter of fiscal 2015, the company expects revenue to be between $49.0 and $51.0 billion, with gross margin between 38.5% and 39.5%.
The disappointing number was iPhone sales, although it was really not that disappointing. In the reporting quarter, Apple sold 47.5 million units of iPhones, a 35% increase year-over-year. Revenue from iPhones was an even better $31.4 billion, up 59% compared to the same quarter last year.
The thing is, although the numbers look good, analysts were expecting 50 million units of iPhone sales, and that miss triggered the crash.
There has been a downward trend for iPad sales, too. In the reporting quarter, the company sold 10.9 million units of the iPad, an 18% decline year-over-year. iPad revenue dropped 23% to $4.5 billion. According to International Data Corp, the tablet market is shrinking. Worldwide shipments for tablets are expected to fall by 3.8% to 221.8 million units in 2015. (Source: IDC, last accessed July 22, 2015.)
Results from the Apple Watch also raised concerns from investors. Apple did not report sales figures of the Apple Watch. Instead, the company reported revenue from other products to be $2.6 billion, which includes sales of Apple TV, Apple Watch, Beats Electronics, iPod, and accessories. According to CEO Tim Cook, the company decided not to disclose metrics of the Apple Watch because the numbers could help its competitors.
Investors had high hopes for the Apple Watch. But at this point, it is yet to deliver promising financial results. Again, for a device to have solid performance, it has to work. I mentioned previously why most wearable technology is just hype.
However, looking at the company as a whole, investors should not worry. Apple might encounter some headwinds as it experiments with newer technologies and products, but its ever-growing cell phone business and solid financials would continue to create value for investors in the long term.