After the closing of the US stock market on Thursday (May 2), Apple released its financial report for the second quarter of the 2024 fiscal year. The financial report shows that in the second quarter ending at the end of March, Apple's revenue and profit performance exceeded Wall Street expectations, and the decline in sales in Greater China was not as significant as previously feared. At the same time, Apple's board of directors also approved the largest stock buyback program in history. Boosted by this financial report, Apple's stock price surged by about 7% after trading on Thursday.
According to the financial report, for the second quarter ending March 30, 2024:
Apple's total revenue was $90.753 billion, a 4% decrease from $94.836 billion in the same period last year, but better than market expectations of $90.33 billion;
The net profit was 23.636 billion US dollars, a decrease of 2% compared to the same period last year's 24.16 billion US dollars, but still better than the market's expected 23.17 billion US dollars;
Diluted earnings per share was $1.53, setting a historic high for the March quarter. This figure is slightly higher than the $1.52 in the same period last year and also exceeds analysts' expectations of $1.50,
The gross profit was $42.271 billion, an increase from $41.976 billion in the same period last year.
The overall performance mentioned above undoubtedly breathes a sigh of relief for investors, who have been waiting for this iPhone manufacturer to emerge from its long-term slump. Affected by unfavorable factors such as the sluggish smartphone market, Apple's sales have declined in five out of the past six quarters. The company warned industry insiders in February that revenue in the next quarter may decrease by about 5% compared to the same period last year.
Apple did not provide a formal performance outlook in its financial report, but CEO Cook stated in an interview that overall revenue for the third quarter is expected to achieve "lower single digit growth.". Apple's revenue in the third quarter of last year was $81.8 billion, and LSEG analysts currently expect a revenue of $83.23 billion for this year's third quarter.
It is worth mentioning that Apple's board of directors has also approved another stock repurchase plan, which will repurchase up to $110 billion worth of common stock in the future. According to data provided by stock market research firm Birinyi Associates, this is the largest stock buyback program in Apple's history.
In addition, Apple's board of directors has approved a 4% increase in quarterly dividends and will distribute a cash dividend of $0.25 per share to common shareholders of the company. This dividend will be distributed to registered shareholders as of the end of business hours on May 13, 2024, on May 16, 2024.
After the latest financial report was released, Apple's stock price surged by nearly 7% after market hours. If this increase can be sustained until Friday's opening, Apple's market value is expected to increase by about $180 billion.
The performance of the Greater China region is not as bad as imagined
From a regional perspective, Apple's revenue in its third largest market, Greater China, in the second quarter was $16.372 billion, although a significant decrease of 8% compared to $17.812 billion in the same period last year, it was better than the market's expected double-digit percentage decline. Before the financial report was released, Wall Street had a pessimistic view that this number could drop by 11% year-on-year to $15.87 billion.
In recent months, the slowdown in Apple's growth in the Chinese market has been particularly concerning for investors. Chinese consumers are gradually flocking to local smartphone brands, which has greatly squeezed Apple's market share.
According to Counterpoint Research's previous estimate, iPhone sales in China decreased by 19% in the first three months of this year, marking the worst quarter of sales for the series since 2020. IDC data shows that the global iPhone shipments also fell by nearly 10% in the quarter, the largest decline since the COVID-19 epidemic blocked the supply chain in 2022.
However, in the above context, Apple's performance in China for the quarter was ultimately more optimistic than expected. Apple CFO Luca Maestri stated that concerns about the Chinese market have been exaggerated. He pointed out, "We are satisfied with our performance in China. The reality may be different from what you sometimes read.".
Cook also refuted the argument that the iPhone was frustrated in the Chinese market, saying that at least in the smartphone sector, the revenue in Chinese Mainland actually increased. He stated that the weakness stems from other parts of the business. He said in a conference call, "The performance of other products is not ideal. Therefore, it is clear that we still have a lot of work to do."
In terms of other major revenue regions, Apple's revenue in the Americas market in the second quarter was $37.273 billion, a decrease from $37.784 billion in the same period last year; The revenue in the European market was $24.312 billion, an increase from $23.945 billion in the same period last year.
During the conference call, Apple executives also praised the company's growth in emerging markets. This includes a historical income record set in Indonesia, where Cook visited Indonesia during a trip to Southeast Asia last month. Cook pointed out, "Our market share in these markets is still very low. The population of these markets is large and constantly growing. Our products have indeed made great progress."
Service revenue becomes a highlight of financial reports
From a business perspective, Apple's most profitable product currently is still the iPhone, accounting for about half of its total revenue. Apple's revenue from the iPhone in the second quarter was $45.963 billion, higher than the expected $45.8 billion. However, compared to the same period last year's $51.334 billion, this number is still sharply declining - industry expectations suggest that this may indicate weak demand for the iPhone 15 series released in September last year.
The revenue of the iPad business continued to decline in the previous quarter, dropping to $5.56 billion, lower than the average analyst expectation of $5.91 billion. In the history of this product, for the first time in a full year, Apple did not upgrade the hardware of the iPad, but the company hopes to correct this situation starting from May 7th. At that time, Apple plans to launch a new iPad, the first update in its tablet product line in a year and a half, and suppressed demand is expected to boost sales of the new model released next week.
The sales of the Mac business in the second quarter were $7.45 billion, exceeding market expectations of $6.79 billion. The new MacBook Air updated its M3 chip in March, driving growth in the business. According to media reports, Apple is planning to release the first batch of Macs equipped with M4 processors later this year, with artificial intelligence features as a new focus.
Apple's wearable devices, home and accessories business generated $7.91 billion in revenue in the second quarter, a decrease from $8.757 billion in the same period last year, and failed to meet analyst expectations. Analysts point out that this may be because the latest Apple Watch model has only undergone a minor upgrade, and the company has not yet resolved the lawsuit surrounding the disabling feature for calculating blood oxygen saturation.
In contrast, service revenue is clearly the biggest growth highlight in this financial report. Apple's service revenue, which has the highest profit margin and accounts for 20% of total revenue, increased by 14.2% year-on-year in the second quarter to $23.87 billion, higher than market expectations of $23.28 billion, and has reached a new high for five consecutive quarters. Apple's service businesses include Apple Music, TV+streaming platforms, and iCloud subscriptions, but its main revenue still comes from the App Store.
Apple executives predict that the percentage increase in service revenue for the next two quarters is expected to remain in double digits.
Apple also entered the mixed reality (MR) headphone market this year and launched the Vision Pro on February 2nd. But the product started slowly and may take several years to bring meaningful revenue growth to Apple. Apple did not disclose the sales figures for the Vision Pro on Thursday, but stated that the device is attracting interest from corporate customers.
Will we soon make a strong push into the AI field?
This global technology giant, headquartered in Cupertino, California, also plans to enter the long-awaited field of artificial intelligence. In June this year, Apple CEO Cook will elaborate on Apple's artificial intelligence strategy at the annual Global Developers Conference.
Apple CFO Luca Maestri said in an interview on Thursday, "We are making significant investments in this field. We believe we are fully prepared."
Cook also pointed out on Thursday that the company is making significant investments in the field of generative artificial intelligence. Apple will stand out among its artificial intelligence competitors by tightly integrating hardware and software, using autonomous chips, and prioritizing privacy and security.
In January of this year, Microsoft briefly replaced Apple as the world's most valuable company, and investors believed that Apple fell behind in the artificial intelligence competition among tech giants on Wall Street, which directly led to pressure on Apple's stock price for the year. However, despite this, many people still have high expectations for Apple's AI strategy and are eagerly following any signals that Apple is moving towards AI.
Morgan Stanley previously predicted that the next generation iPhone "may become a voice activated smart personal assistant, led by the upgraded Siri, which can interact with all applications on the phone through voice control, changing the game rules of ordinary consumers."
Regarding Apple's current stock price performance, Goldman Sachs believes that investors have fully understood the risks of Apple's stock and the focus should shift from profitability to growth catalysts in the second half of the year, including the release of new products such as iPhone 16, iPad, and Mac. Goldman Sachs pointed out in its report that the June quarter may mark a turning point in market sentiment - the next catalyst will be the Apple Global Developers Conference that month, which will discuss new operating systems and generative AI features.