Apple, the world's largest listed company with a market capitalization firmly planted at $3 trillion, released its Q3 2023 fiscal report on August 3. Despite the third fiscal quarter, spanning April to June, traditionally being Apple's slowest growth period, the tech titan's revenue of $81.8 billion exceeded forecasts of $81.6 billion. Furthermore, revenues from the Greater China region totaled $15.76 billion, significantly surpassing the anticipated $14.59 billion, causing shares to rally over 1% post-trade before falling.
This marks Apple's third consecutive quarter of year-over-year revenue decline, the most significant drop since 2016. The first fiscal quarter ending in December last year was the first time since 2019 that revenue decreased, with a 5.5% dip - the steepest quarterly fall in six years.
Third-quarter product revenues stood at $60.58 billion, slightly under analysts' expectations of $60.67 billion. iPad revenue for the same period was $5.79 billion, falling short of the expected $6.33 billion, while Mac revenue of $6.84 billion surpassed the anticipated $6.37 billion.
Apple shares fell 0.7% on Thursday, marking a three-day decline from Monday's record-high closing price, trading at its lowest point in nearly three weeks since July 14.
So far in 2023, Apple has surged over 47%, outperforming the NASDAQ's over 33% and the S&P 500 Index's 17%, where Apple holds the largest weight. This is a significant turnaround from last year when the stock fell about 27%, despite a slowdown in global demand for personal computers and smartphones.
Prior to the earnings release, Wall Street's mainstream consensus was bullish. Out of the 44 analysts surveyed by FaceSet, 29 rated Apple as "buy," 14 rated it as "hold," and only one rated it as "sell." The average target price was $197.16, indicating room for nearly 3% growth. However, the expected price-to-earnings ratio of 32.6 is significantly higher than the three-year average of 27.2 and the five-year average of 23.7. Barron's Weekly argues that this suggests limited room for error under Apple's high valuation.
Why It's Important And What To Focus On: China, India, and AI!
Apple's earnings have always been seen as a bellwether for consumer electronics demand. With several companies like Qualcomm indicating a continuous pressure on such demand due to an inflationary environment, Apple's performance guidance could provide clues as to whether the global economy can achieve a "soft landing." Furthermore, as the largest weight in the S&P 500 Index, Apple's post-earnings share price performance will significantly affect the market trend.
Bob O'Donnell, the founder of TECHnaanalysis Research, pointed out that Apple cannot avoid the overall macroeconomic trends and will continue to lead the development of the smartphone industry for a considerable time. However, Brian White, an analyst at Monness, Crespi, Hardt & Co., believes that despite pressure on the smartphone industry, Apple could continue to outperform the overall market.
Many analysts suggest that investors are more concerned about Apple's guidance for the fourth fiscal quarter than the previous quarter's performance. This is because July to September typically sees an increase in laptop spending due to students returning to school, and the performance of new iPhone models in the first few days after their launch.
Erik Woodring, an analyst at Morgan Stanley, believes that Apple may predict a return to year-over-year revenue growth in the fourth fiscal quarter. Wedbush analyst Dan Ives predicts the release of the 15th-anniversary edition iPhone 15 in mid-September, noting that approximately 25% of current iPhone users have not upgraded their phones in over four years, implying a smoother transition from the iPhone 14 to 15 upgrade cycle.
Wall Street is also paying attention to the performance in Greater China, Apple's traditional growth engine, and the emerging market of India. Previously, Greater China was Apple's third-largest sales region, but its revenues have declined year-over-year for two consecutive quarters.
According to IDC, Apple's market share in China's smartphone market has been increasing and reached 15.3% in the second quarter of this year, with iPhone sales growing 6.1% in the same period. Meanwhile, data from market research firm International Data Corp shows that China's overall smartphone shipments fell 2.1% during the same quarter, indicating that Apple continues to outperform its global competitors in China's smartphone sales.
When Apple discusses AI, it prefers to use terms like machine learning and likes to discuss what software updates incorporating AI features can do for users. In the last quarter's earnings call, Cook only mentioned AI twice and did not mention it at all during the software release event in June. However, because the augmented reality headset uses AI technology, some analysts expect Apple to discuss its AI strategy more aggressively in the future.
What to Expect Going Forward?
Apple's foray into financial services seems to be going quite smoothly. Apple stated that since its launch in April, its high-yield savings account, developed in partnership with Goldman Sachs, has attracted $10 billion in deposits, offering an annual savings rate of 4.15%.
Apple, with a global base of 2 billion active devices, also has its sights set on other financial products. The company recently launched a small business lending program, also developed in collaboration with Goldman Sachs. It has also begun the private testing phase for its peer-to-peer payment platform, which it hopes to officially launch by the end of the year.
However, despite Apple's efforts to diversify its revenue, its iPhone remains the largest revenue driver, accounting for over 50% of total sales. The success of the upcoming iPhone 15 could make or break Apple's efforts to return to overall revenue growth.
This makes the annual fall event, where Apple typically unveils its latest iPhone model, an event worth watching closely. With rumors of an upcoming 15th-anniversary iPhone edition with AI upgrades and potentially groundbreaking technology, investors, consumers, and the tech industry alike eagerly await the official reveal.
Apple's foray into financial services seems to be going quite smoothly. Apple stated that since its launch in April, its high-yield savings account, developed in partnership with Goldman Sachs, has attracted $10 billion in deposits, offering an annual savings rate of 4.15%.
