Apple reports better than feared financial figures and increasing demand for the iPhone 16

Kathleen William November 1, 2024

Late Thursday, Apple delivered a quarter that can only be described as much better than feared. It wasn't perfect, but it was damn good. Revenue in Apple's fourth quarter of fiscal 2024, which ended in September, rose 6% year over year to a record September quarter of $94.93 billion, beating the LSEG estimate of $94.58 billion . Adjusted earnings per share rose 12% to $1.64, beating the LSEG estimate of $1.60. It's worth noting that Apple typically doesn't report on an adjusted basis. However, due to a one-time income tax charge of $10.2 billion due to the overturning of the European Court's decision on state aid, the company has opted to reconcile this and report the adjusted earnings by which Wall Street will judge the quarter . Apple Why We Own It: Apple's dominant hardware and growing services divisions provide a strong competitive advantage and numerous bundling opportunities. Management's net cash neutral strategy provides confidence that free cash flow will continue to fund dividends and buybacks. There's a reason it's one of only two stocks in the portfolio that embrace the “own, don't trade” principle. Competitors: Samsung, Xiaomi, OPPO, Dell and HP Inc. Last Purchased: April 8, 2014 Launched: December 2, 2013 Conclusion We are once again reminded why it's not worth trying to manipulate Apple's quarterly release . Despite all the scaremongering we've had to deal with over the past few weeks about how terrible this squeeze would be, it represented a September quarter sales record for the world's largest consumer technology company. On the post-earnings call, the outgoing CFO said Luca Maestri: “We grew in the vast majority of the markets we track and achieved record sales in the September quarter in the Americas, Europe and the rest of Asia Pacific.” Americas rose 3.9% to 41, $66 billion, slightly below estimates. Europe and the rest of Asia Pacific grew and exceeded expectations. “Rest of Asia Pacific” is Apple's geographic designation for the region outside of Japan and Greater China. Japan grew and outperformed in the quarter, while Greater China fell 0.3% to $15.03 billion, falling nearly $1 billion short of expectations. As always, we were pleased to hear that Apple's installed base of active devices reached another all-time high across all products and geographic segments. This is a far more important factor than the number of devices sold in a given quarter. The key to Apple's success lies not in how many devices the company can sell in three months, but in how well it manages to increase the lifetime value of its customers over time. Once Apple sells a device to someone new to the lineup, it sets them up to sell more first-time items — it probably starts with an iPhone, but half or more of Mac, iPad and Apple Watch buyers in Platforms were new to the product range this quarter. But this is just the beginning of tying them deeper into the ecosystem, and the deeper you go, the higher the switching costs become. We expect this to become more the case in the future as Apple Intelligence continues to expand – more features will be added in December. While hardware sales are certainly profitable, they pale in comparison to the profitability of Apple's services. However, they are the gateway through which these services are sold. Therefore, a growing installed base is a very important sign of future earnings growth. As for interest in Apple Intelligence, the company's answer to AI, we believe it will accelerate the iPhone upgrade cycle over time. Since the AI functions were only released in an operating system update, the data is limited so far. However, the team noted on the call that the adoption rate of iOS 18.1 in the first three days of launch was twice as high as when iOS 17.1 was released. It's still early, but users are clearly excited about what Apple Intelligence will mean for the iPhone and are eager to try it out. AAPL YTD Mountain Apple's stock performance since the beginning of the year. Yes, Apple shares fell nearly 2% in after-hours trading, following a similar decline in Thursday's difficult regular session for technology stocks. But we believe these results show once again that you can make a lot more money in the long run by owning Apple stock than by exiting every three months to avoid the next dip and time the bounce before the next rally . It's impossible to do this consistently, and that's why Jim Cramer always says, “Own, non-trading” Apple stock. While we maintain our wait-for-a-pullback 2 rating for now, we are increasing our price target from $240 to $250 per share as we look ahead to what we believe will be Apple's next fiscal year will be exciting Apple Intelligence marks, in the words of CEO Time Cook, “the beginning of a new chapter for Apple innovation” and the “beginning of a new era for the iPhone”. Our new price target implies an upside of 10.7% from Thursday's close. Comment On a company-wide basis, cost of sales and SG&A (selling, general and administrative expenses) were somewhat high, but that is to be expected when sales exceed expectations. More importantly, both Apple's overall gross margin and operating profit margin came in stronger than expected. Mac, iPad, wearables and services sales all lagged slightly, but were within two percentage points of expectations and were more than offset by strength in iPhones. Additionally, gross revenue exceeded expectations for both the overall product category and the services segment. Product gross margin fell a hair short of expectations, but was more than offset by a very strong services gross margin. Although total cash flow was somewhat tight, this represents a record for the operating cash flow quarter in September. Apple's policy is to be net cash neutral over time, meaning that if the cash is not used for Acquisitions or organic growth investments are used to be returned to shareholders through buybacks and dividends. During the quarter, Apple returned over $29 billion to shareholders, including $3.8 billion in dividends and equivalents and another $25 billion through the repurchase of 112 million shares. The company ended the fiscal fourth quarter with approximately $157 billion of cash, equivalents and marketable securities on its balance sheet. After subtracting $107 billion in debt, that leaves net cash of about $50 billion. Products On the call, Maestri said something that was music to us: “Our installed base of active devices reached an all-time high across all products and geographic segments, thanks to very high customer satisfaction and loyalty, as well as a large number of customers who don't know our products yet. iPhone sales hit a record high in the September quarter, reaching a record-breaking installed base across all geographic segments, with the CFO noting that, according to Kantar surveys, “the iPhone was the best-selling model in the US, urban China, the UK, Australia and Japan.” .” Services The segment achieved an all-time quarterly revenue record. Although service sector revenues fell short of expectations, gross revenues exceeded expectations thanks to a significant year-over-year margin increase. “We observed broad-based strength around the world, reaching records in both developed and emerging markets, with double-digit growth and record results in most services categories,” Maestri noted. The growing installed base of active devices naturally leads to strong commitment to Apple's services. The CFO said: “Both transactional accounts and paid accounts reached new all-time highs, with paid accounts growing by double digits year-on-year. Paid subscriptions also grew by double digits. We have well over 1 billion paid subscriptions across all services on our platform,” more than double the number four years ago. The forecast for the December quarter (first quarter of fiscal 2025) assumes that the macroeconomic outlook does not worsen. Total revenue is expected to rise in the low to mid-single digits in the fiscal first quarter – The Street had expected revenue growth of 7% year over year. Services revenue is expected to grow by double digits, which is in line with what we saw for fiscal 2024, which was about 12%, which is right in line with expectations. Gross margin is expected to be between 46% and 47%, better than the median estimate of 46.1%. Operating costs are expected to be between $15.3 billion and $15.5 billion, slightly higher than the $15.32 billion estimate. (Jim Cramer's Charitable Trust has a long AAPL position. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

An iPhone 16 sign is seen in the window of the Fifth Avenue Apple Store on new product launch day on September 20, 2024 in New York City.

Michael M. Santiago | Getty Images News | Getty Images

Apple Late Thursday delivered a quarter that can only be described as much better than feared. It wasn't perfect, but it was damn good.

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Apple reports better than feared financial figures and increasing demand for the iPhone 16

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