ii view: Apple stock booming after record service sales

Record service sales helped counterbalance another fall in iPhone sales and investors are piling in.

Third-quarter results ending 29 June 2019

• Revenue up 1% to $53.8 billion from Q3 2018
• Net income down 12.8% to $10.04 billion
• Earnings per share down 7% to $2.18
• Returned over $21 billion to shareholders
• Dividend of $0.77 per share

Chief executive Tim Cook commented: 

"This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends. These results are promising across all our geographic segments, and we're confident about what's ahead."

ii round-up:

Apart from devices, Apple (NASDAQ:AAPL) is mostly focused on its Apple Music streaming service, Apple Pay contactless payments and selling music tracks and mobile apps on the iTunes Store.

The technology giant is also investing $1 billion to build a new campus in Austin, Texas. It employs more than 100,000 people. 

macOS Catalina, the latest version of Apple's Mac operating system, debuts in the autumn.

The company reported results which broadly exceeded analyst expectations, with both revenues and earnings per share metrics surpassing forecasts. Sales from its increasingly important Services business, which includes music streaming and app sales, rose by just under 13%. 

As expected, iPhone sales declined, falling by just under 12%, although less than the 17% recorded the previous quarter. 

Geographically, sales in the Americas, including its home US market, rose by 2%, although sales for both Europe and Greater China retreated 1.8% and 4.1% respectively. 

The company also announced a new credit card service tie-up with Goldman Sachs which can operate through its Apple pay app. 

Apple's share price rose by over 3% in after-hours US trading. 

ii view:

The success of Apple's iPhone is arguably the product success of the millennium. In 2018, Apple sold over 215 million iPhones worldwide, up from under 2 million in 2007 when it was launched.  

A base of over 1.4 billion active devices has allowed its Services business, which includes Apple music, to blossom. Services accounted for just over one-fifth of third-quarter sales. 

For investors, concerns over what might take up the slack from the current tailing-off of iPhone device sales persists. A trade war between the US and China, a key market place, is also unhelpful. More favourably, the group's cash balance and recent change towards funnelling cash back to shareholders offers a positive catalyst. So does impressive gross margin, which demonstrates Apple does not have to cut prices to keep growing.

Positives:

• Service sales hit a record
• Shareholder returns are now a focus
• Launching new products like credit cards

Negatives:

• iPhone sales, a core product, fell again
• Concerns about an antitrust US Justice Department probe have surfaced
• A trade war between the US and China hinders Chinese sales

The average rating of stock market analysts:

Buy