A 10% drop in iPhone sales seems like a problem appleconsidering that the company counts on devices for half of its revenue.
But investors didn’t seem fazed on Thursday when Apple revealed the year-over-year decline in its second-quarter earnings report. The stock rose more than 6 percent after the market closed, a rally that would be its steepest since November 2022 if it continued in regular trading on Friday.
Instead of looking too far ahead of iPhone revenue, Wall Street chose to focus on the positives. Apple’s gross profit margin expanded to 46.6%, continuing an upward trend that reflects the company’s growing services business, which brings with it big profits.
Apple also signaled that overall revenue growth in the current quarter will be in the low single digits, after falling 4% in the second quarter. Analysts were looking for 1.3% growth for the third quarter, according to LSEG.
Gene Munster of Deepwater Asset Management described the guidance as a “relief” given the business’s recent run.
“I expected that to be flat, some investors were saying it would be down a couple of percent in June,” Munster told CNBC’s “Fast Money” after the report. “I think that was a big part of that transition higher.”
But perhaps the biggest catalyst for the pop was Apple’s announcement that it had approved $110 billion in stock buybacks, the most ever for a public company. Over the past three years, Apple has approved $90 billion in annual buybacks.
The after-hours jump shows how much investors value Apple’s massive cash flow and the company’s willingness to return more of it to shareholders. It’s a shift in how Wall Street has viewed Apple over the years, away from a blockbuster gadget business and toward a financial powerhouse.
“Our free cash flow generation has been very strong over the years, particularly in recent years,” Apple CFO Luca Maestri said on the earnings call.
Apple revealed earlier this year that it has 2.2 billion active devices, demonstrating the breadth of its customer base as the company launches new subscription services. Despite a 4% decline in revenue, Apple still posted a profit of nearly $24 billion, a slide of just over 2% from a year earlier.
Apple said iPhone sales suffered from a tough comparison to last year, when sales were up after earlier shortages. But investors are looking to future iPhone growth, and many analysts say a potential iPhone with AI features could do the trick and help the company snag customers from Android. Annual iPhone revenue peaked in Apple’s 2022 fiscal year.
While Apple provided some guidance on overall revenue, it refrained from offering any kind of forecast for iPhone sales.
That’s a change, even for a company that’s been giving less guidance since the pandemic. Maestri usually provides iPhone sales trends, and has for the past four quarters.
There’s no guarantee that investors can continue to count on increased buybacks from a company that has been more aggressive in this segment than any other. Apple says it is trying to reduce its massive cash pile, which stood at $162 billion at the end of the quarter. When its debt roughly equals its cash balance — meaning the company is net cash neutral — Apple will assess what to do next, executives said Thursday.
By the end of 2023, Apple had spent $658 billion on acquisitions over the past 10 years, well ahead of second-place Microsoft, according to S&P Dow Jones Indices.
“In the last two years we’ve done $90 billion and now we’re doing $110 billion,” Maestri said on the call.
As for what will happen when Apple gets to pure cash, Maestri said, “let’s get there first. It’s going to take a while.”
“And then when we’re there,” he said, “we’ll reassess and see what the optimal capital structure is for the company at that time.”
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