AAPL

Apple Inc., the world’s largest firm by market capitalization, reported a beat on most financial metrics in its fourth quarter earnings results. Despite surging COVID cases and lockdowns in China, supply chain issues, foreign exchange headwinds, and an impending global recession, the company posted a record September quarter that was generally ahead of Wall Street consensus expectations. Shares were up almost 6% in the morning trading session. Apple is also outperforming the S&P 500 for the year, with shares down 13.2%, versus the 19.6% decline in the benchmark.

The company reported fourth quarter adjusted earnings per share of $1.29 which was up 4% year over year and versus the expectation for $1.26. Total revenue was up 8.1% year over year to $90.15 billion, also ahead of the average analyst estimate for sales to be $88.65 billion. Products revenue, which is composed of iPhones, Macs, iPads, Apple Watches, and headphones, was up 9% year over year to $70.96 billion, higher than the estimated $69 billion.

Within products, iPhone revenue jumped 9.7% over the same period last year to $42.63 billion, slightly behind the forecasted $42.67 billion. Mac revenue was the biggest gainer after a disappointing fiscal year, jumping by 25% to $11.51 billion, well ahead of estimates by more than two billion dollars. Wearables, home, and accessories revenue also beat, rising 9.8% year over year to $9.65 billion against estimates of revenue of $8.8 billion.

Services revenue, the money Apple generates predominantly from its licensing fees with companies such as Google and the App Store, came in at $19.19 billion, up 5% from 2021, but lower than the almost $20 billion that investors wanted to see. Service’s rate of growth has slowed significantly, after jumping by 25% in the fourth quarter of 2021. It is also lower than the 12% growth Apple recorded in the third quarter of this year. The Service division is key for Apple as it is a high-margin, low-volatility business.

Chief Financial Officer Luca Maestri mentioned that the companies installed base, or the number of users of Apple’s various products, grew to a record high across every geographic and product category. However, the CFO said that Mac sales would decline in the ongoing holiday quarter as new models had been released in the fourth quarter. Further, while Apple did not provide a specific forecast for the first quarter of fiscal 2023, the company did say it expected growth to slow down going forward.   

Despite the notes of caution about the future, Apple’s fortress balance sheet, its large buyback program and its stellar execution capabilities could also counter potential economic headwinds. At roughly 24 times forward earnings, Apple is cheaper than many other technology companies. Its gross margin of 42.3% during the quarter is rare amongst companies that make physical goods, while its net income margin of 23% is one of the highest of any large-cap company in the world.

The company has also throttled spending more recently, becoming more deliberative in decisions on where to invest, according to Chief Executive Officer Tim Cook. Management also boosted prices for services recently, with the Apple Music subscription now priced at $10.99 per month from $9.99, while TV+, the company’s fledgling streaming service, would see a price increase of $2 per month to $6.99. Apple has also benefited from a strong ecosystem of products, keeping its fans loyal by offering synergistic products and services that also increase revenue per customer.