In a quarter when iPhone unit sales were of somewhat diminished importance, Apple Inc. beat earnings and revenue expectations and then delivered an upbeat view of what’s to come, sending shares toward record highs.
The company reported better-than-expected results for its fiscal third quarter Tuesday, posting earnings per share of $2.34 on revenue of $53.3 billion. Analysts surveyed by FactSet had been projecting $2.16 in EPS and $52.3 billion in revenue. Apple stock rose about 4% in after-hours trading, to prices that would be record highs were they to occur during a regular trading session.
For more on Apple earnings, see our live blog recap
Though Apple AAPL, +0.20% once again fell short of Wall Street’s estimates for iPhone unit sales, the company more than made up for that thanks to selling more of its premium iPhones. Apple ended up with an iPhone average selling price of $724 in the June quarter, which was far ahead of the $693 analysts were projecting. The spring quarter typically brings the lowest average selling prices of the year as Apple nears the release of new iPhones, but Apple saw a meaningful increase from the $606 it reported in the prior June quarter.
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Arguably the most useful number in Apple’s fiscal third-quarter report was its September-quarter outlook of $60 billion to $62 billion in revenue, which came in above the FactSet consensus for $59.5 billion in revenue. Typically investors look to Apple’s September forecast for indications of whether the company expects to start selling new iPhones before that quarter ends. Given Apple’s revenue outperformance versus the consensus in the current quarter, though, Apple’s optimism could also be due to product mix.
Services revenue has become an increasingly important element of Apple’s business, as it indicates how well the company is able to monetize its installed base of users amid what Chief Executive Tim Cook admitted was a lengthening upgrade cycle. Apple reported $9.5 billion in services revenue for the latest period, up from $7.3 billion in the year-earlier quarter. Analysts had been projecting $9.2 billion.
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On the company’s earnings call, Cook shared more information about the services business, and he was prompted by one analyst to discuss Apple’s various streaming efforts. He talked about how Apple’s services segment was getting a boost from increased usage of third-party subscription-video products within the Apple ecosystem. Apple gets a cut of the subscription fee when consumers sign up for streaming services like Netflix Inc. NFLX, +0.74% , and Cook suggested Apple is seeing growth in video-streaming subscription services at about 100% on a year-over-year basis.
As for Apple’s own video content, Cook said there was “no match” for Oprah Winfrey’s ability to connect with audiences — Apple has struck a deal with her. He also said that two Sony veterans brought on last year were working on another exciting but secret project, which could be a rumored streaming service.
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Apple Music, its streaming-music service, now has upward of 50 million users who either pay for the service or are using a free trial, and Cook said he’s “been told” that the company “took the leadership position in North America” this quarter. He dismissed competitive concerns, saying that the endgame for Apple and rival streaming-music companies such as Spotify Technology SA SPOT, +3.42% and Pandora Media Inc. P, -2.46% is to expand the category, not go up against each other.
Streaming music is part of Apple’s services segment, which has become an increasingly important element of Apple’s business. The company reported $9.5 billion in services revenue for the latest period, up from $7.3 billion in the year-earlier quarter. Analysts had been projecting $9.2 billion.
Another closely watched area for Apple is China, where the company has seen a recent rebound. That trend continued in the most recent period, which marked the company’s fourth-straight quarter of double-digit growth in Greater China. Apple generated $9.6 billion in sales from Greater China, up from $8 billion in the prior June quarter.
Cook talked a good amount on the call about tariffs, striking a balance between saying that certain trade relationships “are in need of modernizing” but also that tariffs tend to show up “as a tax on the consumer.” As for tariffs on steel and aluminum as well as two other rounds of tariffs that affected $50 billion of Chinese goods, Apple hasn’t seen any of its products directly affected, according to Cook. The company is in the process of “sharing our views with the administration” regarding a fourth round of tariffs that affects goods valued at $200 billion.
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Overall, Cook said, he’s “optimistic” that the U.S. and China will be able to work out their trade differences.
Apple’s stock has gained 28% over the past 12 months, while the Dow Jones Industrial Average DJIA, +0.43% , of which Apple is a component, has risen 16%.
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