$Apple (AAPL.US)$For six consecutive quarters, revenue and profits have exceeded expectations, reaching the highest total revenue and EPS in June quarter history. Service revenue has hit a new high for six consecutive quarters, and together with the surge in iPad revenue, has pushed total revenue growth beyond expectations. Although iPhone revenue fell year-on-year, the total amount exceeded expectations, and Greater China was the only geographic region that exceeded expectations in terms of both year-on-year decline and drop.

After the US post-market trading on Thursday, August 1st, consumer electronics and tech giant Apple released its fiscal third-quarter results for 2024 (ie, the second quarter of the calendar year 2024), marking the end of the earnings season for large tech stocks along with Amazon.

1) Main financial data

Quarterly revenue: up 4.9% YoY to $85.78 billion, higher than market expectations of $84.46 billion.

Diluted EPS per share: up 11% YoY to $1.40, higher than market expectations of $1.35.

Net income: up 7.9% YoY to $21.45 billion.

Overall operating expenses: up 6.8% YoY to $14.33 billion, slightly below market expectations of $14.39 billion.

Gross profit margin: 46.3%, higher than market expectations of 46.1%.

2) Segmented business data

Q3 iPhone revenue: down 0.9% YoY to $39.3 billion, higher than analysts' expectations of $38.95 billion.

Q3 Mac revenue: up 2.5% YoY to $7.01 billion, higher than analysts' expectations of $6.98 billion.

Q3 iPad revenue: up 23.7% YoY to $7.16 billion, far exceeding analysts' expectations of $6.63 billion.

Q3 Wearables, Home and Accessories revenue: down 2.3% YoY to $8.1 billion, higher than expectations of $7.79 billion.

Q3 service revenue: up 14% YoY to $24.213 billion, higher than market expectations of $23.96 billion.

Q3 product revenue: up 1.6% YoY to $61.56 billion, higher than market expectations of $60.63 billion.

3) Geographic segment data

Q3 Greater China revenue: down 6.5% YoY to $14.73 billion, lower than analysts' expectations of $15.26 billion.

Largest market: Americas' revenue rose 6.5% YoY to $37.68 billion.

Second largest market: Europe's revenue increased by 8.3% YoY to $21.88 billion.

Revenue in Japan increased by 5.7% YoY to $5.1 billion.

Other Asia Pacific revenue: up 13% YoY to $6.39 billion.

4) Capital Return

The company's board of directors has announced a cash dividend of $0.25 per share, payable on August 15, 2024 to shareholders of record as of the close of business on August 12, 2024.

The company's CFO, Luca Maestri, said that the operating cash flow for the quarter was almost $29 billion, returning more than $32 billion to shareholders.

Cash and cash equivalents: $25.57 billion, lower than the market expectations of $28.98 billion.

Apple has exceeded revenue and profit expectations for six consecutive quarters, setting records for total revenue and EPS in the June quarter (the company's third quarter), and service revenue has hit record highs for six consecutive quarters. The increase in total revenue was driven by the surge in service revenue and iPad revenue, despite a YoY decline in iPhone revenue, which was also better than expected. After-hours trading surged 1.3% and then fell 2%, now up 0.57%.

Mark Gurman, a well-known technology journalist for mainstream financial media, commented that everything looks good for Apple financially, but the company has lost its innovative touch and may have missed out on the latest significant new product. In addition, it has canceled future growth drivers such as self-developed screen technology and autonomous driving cars. "I do not think there are any new, game-changing products in Apple's product roadmap for the next two to three years. There will be anything new and groundbreaking appearing around 2027."

Wall Street still has a consensus expectation of "hold" for Apple, and the forecast is optimistic. 25 analysts have rated it as a buy, 9 have rated it as hold, and 1 has recommended it as a sell, with an average target price of $240.61 representing a 10% upside potential.

Cook: Artificial intelligence is another reason for people to buy new iPhones, and we are still confident in the Chinese market in the long term.

Since the outbreak of COVID-19, Apple has no longer published formal performance guidance, but often discloses one or two in the earnings call. Today, the company's executives said that the total revenue growth rate in the fourth quarter is expected to be similar to that in the third quarter, and it is expected that service revenue will record a double-digit percentage growth. Artificial intelligence (AI) is another reason people buy new iPhones, and we are still confident in the Chinese market in the long term.

Apple CEO Cook said in a earnings statement that in the second quarter of 2024, the company announced "amazing updates" to its software platform at the Worldwide Developers Conference, including the breakthrough personal intelligence system Apple Intelligence, which can place powerful and private generative AI models at the core of iPhone, iPad, and Mac.

Company executives also stated that thanks to the high customer satisfaction and loyalty, the active device installation base has reached a historical high in all geographic areas. Apple said in February that its global active device base had reached 2.2 billion. Apple also stated that the number of paid subscribers has reached 1 billion, including data from subscribers who have subscribed to iPhone applications through the Apple App Store.

In an interview with the media, Cook said that although iPhone sales in Q3 YoY fell by about 1%, the business grew YoY in terms of constant currency. "From an operational perspective, this is how we look at the issue."

In addition, iPhone sales hit record highs in the UK, Spain, Indonesia, the Philippines, and several other markets in the second quarter of the calendar year.

He added that although Apple did not know what positive impact its new Apple Intelligence service would have on sales before it began shipping to customers later this fall, the company had been increasing spending to prepare for its promotion:"We have moved many people who were working on other things to the AI department. From a data center perspective, we use a hybrid approach, which means we use not only our own data centers, but also partner data centers. Therefore, this capital expenditure (capex) is reported in the partner's financial statements, and we will pay the expense. However, the latest Apple financial report certainly reflects our increase in spending on AI and Apple intelligence compared to the same period last year."

Cook also mentioned that about half of the iPad buyers had never owned an iPad before, indicating that the tablet market has not yet saturated. Apple released its first new version of the iPad since 2022 during the reporting period, driving sales growth in this sector the strongest among all product lines. At the same time, up to two-thirds of Apple smartwatch buyers are first-time buyers, and the user base is still growing significantly.

"We have moved many people who were working on other things to the AI department… So, this capital expenditure (capex) is reported in the partner's financial statements, and we will pay the expense. However, the latest Apple financial report certainly reflects our increase in spending on AI and Apple intelligence compared to the same period last year."

Cook also mentioned that about half of the iPad buyers had never owned an iPad before, indicating that the tablet market has not yet saturated. Apple released its first new version of the iPad since 2022 during the reporting period, driving sales growth in this sector the strongest among all product lines. At the same time, up to two-thirds of Apple smartwatch buyers are first-time buyers, and the user base is still growing significantly.

Regarding the performance of Greater China, Cook stated:

The installation base of iPhones has actually reached a record high. Market research and consulting firm Kantar tells us that Apple's smartphones rank in the top three in urban sales in China, and the performance of the Chinese market has been accelerating since the first half of the fiscal year.

How does Wall Street look at this?

On the one hand, Wall Street hopes to glimpse clues as to when the iPhone 16 series will be released from the financial report conference call. Although Apple usually releases new products in September, it has also been delayed until October in the past. In terms of product structure, the operating income of 10-30 billion yuan products was 401/1288/60 million yuan respectively, and the total sales volume of the company in 23 years was 18,000 kiloliters, with a year-on-year increase of +28.10%, a significant growth.

Bank of America and Evercore ISI believe that the quarter in which September is located will include the performance of the entire week when the new iPhone is launched, and the early demand signs are strong, which will lead to a year-on-year growth in iPhone revenue. The market currently expects fourth quarter iPhone revenue to be $44.18 billion, higher than last year's $43.81 billion.

Evercore ISI said that comments on the iPhone will be the key catalyst for this quarter's financial report. "Optimistic comments on the iPhone 16 expectation and the stabilization of the Chinese market may push the stock price up." Dan Ives, a well-known technology analyst at Wedbush, pointed out that 0.27 billion iPhones have not been replaced in more than four years, and the AI-driven super cycle will trigger suppressed demand.

At the same time, the market generally believes that new AI features will be the main driving force for the "super cycle" of hardware product upgrades and replacements for the entire Apple family, led by the iPhone, although there are reports that AI functions for mass consumers will be delayed until October. Some people are worried that investing heavily in the development of AI technology will have a negative impact on Apple's profitability.

Krish Snakar, an analyst at TD Cowen, warned that Apple's performance still faces some unfavorable factors, such as continuous market share of local brands in the Greater China region, global consumer demand affected by macroeconomic disturbances, and trends in foreign exchange.

The latest data from research agencies IDC and Canalys both show that the domestic leading mobile phone brands exceeded Apple in the second quarter in terms of shipments, and Apple had no chance for the top five. Some people point out regulatory risks, such as Google's payment to Apple to become the default search engine or constitute a litigation threat.

Unlike JPMorgan, which is bullish on the third quarter sales growth in Greater China, David Vogt, an analyst at UBS Global Research, believes that sales in the region for the quarter may decline by 6%, which is more pessimistic than the market expectation. He rates Apple as "hold" with a target price of only $190, which "reflects Apple's challenging growth prospects and unclear global strategy for Artificial Intelligence."

"Apple's stock price has risen 38% from its lows in April, and the hype surrounding its stock in Artificial Intelligence is wrong, as the iPhone super replacement cycle may be difficult to reach. After WWDC in June, people's confidence in the AI super cycle of the iPhone in the fiscal year 2025 has reached its peak. The most optimistic expectations are that iPhone sales in the next fiscal year will exceed 0.25 billion units, and some forecasts are as high as 0.26 billion units,

"But our analysis of regional smartphone demand, past replacement cycles, income population statistics and operator subsidies shows that the cycle next year will be more moderate. Therefore, we predict that iPhone revenue growth rate will be 2.4%, which is about 400 basis points lower than Wall Street's consensus expectation and nearly 1000 basis points lower than the most optimistic forecast."

Editor/Somer