In the third quarter, Apple's revenue grew strongly by 4.87% to $85.777 billion, higher than analysts' expected $84.462 billion; Adjusted EPS was $1.40, higher than the expected $1.35, and last year's same period was $1.26; Net income increased by 7.88% YoY to $21.448 billion; Gross margin was 46.3%, higher than the market's expected 46.1%.
Early morning on August 2nd, Beijing time, the global market's focus was on the leader of US stock market.$Apple (AAPL.US)$Release the financial report for the third quarter of fiscal year 2024.
Performance shows that the company's overall revenue is better than expected, benefited from the strong performance of iPad and service revenue, but the degree of decline in the performance of the Chinese market exceeds market expectations. The mutual offset between positive and negative factors is also partly causing Apple's pre-market consolidation.
Overall, the performance was better than expected, but there are hidden concerns in the Greater China business.
In terms of overall business, in the third quarter, Apple's revenue grew strongly by 4.87% to $85.777 billion, higher than analysts' expected $84.462 billion; Adjusted EPS was $1.40, higher than the expected $1.35, and last year's same period was $1.26; Net income increased by 7.88% YoY to $21.448 billion; Gross margin was 46.3%, higher than the market's expected 46.1%.
Looking at the segmented business, iPad revenue and service revenue both increased significantly year-on-year, up 23.67% and 14.14% respectively.
Apple's iPad business benefited from the long-awaited release of new models. The company launched major upgrades in May, including the iPad Pro with a higher price and equipped with an M4 chip, as well as the iPad Air with faster speed and larger screen.
The growth of the service business mainly comes from user accumulation and the increase in revenue per user. The number of paid subscribers has exceeded 1 billion, setting a new record. Advertising, cloud computing services and payment services all set new records. Business such as App Store, Apple Music and TV+ streaming media platforms will continue to provide growth momentum for Apple.
However, due to the pressure from local competitors such as Huawei, Apple's sales in Greater China fell by 6.5% to $14.7 billion, lower than the market's expected $15.3 billion, which also caused strong concerns in the market.
Apple attributed the decline in sales in China to the impact of the strong US dollar, stating that its underlying business in China is actually healthier than before.
Regarding the decline in business in Greater China, Cook expressed his long-term confidence in the Chinese market. He believes that the business in the Chinese region has shown signs of improvement compared to before, indicating that recent pricing and discount measures may be effective. He also stated that since the release of the iPhone 15, its sales in the Greater China region have exceeded that of the iPhone 14, which may be a positive indicator before the upcoming release of the iPhone 16.
Can AI stories boost Apple's performance?
Since Apple announced in February that it would abandon the car-making business and focus on AI, the company's stock price has risen by nearly 20%.
On this earnings conference call, Apple CEO Cook also gave a fresh outlook on AI business.
He stated that some functions of the Apple Intelligence department will be launched gradually within this year, and it is expected that Siri will integrate ChatGPT function before the end of this year. Apple is increasing its investment in artificial intelligence and machine learning, and plans to increase investment year by year in preparation for the launch of Apple Intelligence this fall.
In June of this year, Apple showcased new artificial intelligence features at its developers conference, and released the first version of its artificial intelligence feature, Apple Intelligence, at the end of July. However, this technology will be used on iPhone, iPad and Mac, and is expected to be released to consumers in October.
Although Apple Intelligence features will be freely updated with iOS 18 and macOS 15, they require the latest Apple devices, such as M1 or higher versions of the iPad and Mac, or the iPhone 15 Pro. The new iPhone 16 model, which will be released this fall, will also be compatible with Apple Intelligence. It is generally believed that the new AI features will be the main driving force behind the upgrade of the Apple family, led by iPhone.
On Wall Street, the voices supporting Apple are still mainstream.
On Wall Street, the bullish voice on Apple is still mainstream.
Wedbush expects that demand for iPhones in China has stabilized, and from September, Apple's sales in the Chinese market will resume growth.
Wedbush expects the initial shipments of iPhone 16 to reach 90 million units, exceeding the previous estimate of 80-84 million units. Wedbush believes that Apple's collaboration with OpenAI will drive the stock up $30 to $40 through the integration of artificial intelligence.
According to Bank of America Merrill Lynch strategists, investors are more interested in future market guidance than quarterly earnings, particularly the development of AI smartphones, the Chinese market, and service business income. They have observed a large number of old iPhone users' updating demand, and the new AI functions will further drive this upgrade trend.
Morgan Stanley reiterated this week that Apple is its top pick stock and expects that by the end of this fiscal year, the number of iPhone users who have not updated in three years will reach 700 million, indicating huge market renewal potential.
Credit Suisse predicts that Apple's AI upgrade will push iPhone sales to 2.35 billion units and 262 million units in fiscal years 2025 and 2026, respectively.
Needham analyst believes that Apple may boost its stock price through large-scale share buybacks. In the financial report, Apple announced a quarterly dividend of $0.25 per share, with expenses of $32 billion for dividends and share buybacks.
However, some analysts remain cautious about Apple.
Barclays believes that Apple's performance may improve from September, but the stock has already been high, limiting its gains. Given that Apple's P/E ratio has exceeded 30 times and iPhone 16 may not be enough to drive a major upgrade cycle, Barclays has set a target price of $187 per share and expects the stock price to fall by 16%.
David Vogt, an analyst at UBS Global Research, believes that sales in the greater China region for the quarter may decline by 6%, which is more pessimistic than the market's expectations. He rates Apple as 'hold' with a target price of only $190.
In addition, compliance issues with the EU Commission's 'Digital Market Act' may pose some regulatory challenges for Apple.
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Can AI stories boost Apple's stock price?
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Edited by lambor; illustrated by somer.