Apple Inc (AAPL) Earnings Call Transcript Highlights: Q1 2024 Results Surpass Expectations with ...

• Revenue: $119.6 billion, up 2% year-over-year.

• EPS: $2.18, up 16% year-over-year, an all-time record.

• iPhone Revenue: $69.7 billion, up 6% year-over-year.

• Mac Revenue: $7.8 billion, up 1% year-over-year.

• iPad Revenue: $7 billion, down 25% year-over-year.

• Wearables, Home and Accessories Revenue: $12 billion, down 11% year-over-year.

• Services Revenue: $23.1 billion, up 11% year-over-year.

• Gross Margin: 45.9%, up 70 basis points sequentially.

• Net Income: $33.9 billion, up $3.9 billion from last year.

• Operating Cash Flow: $39.9 billion.

• Active Installed Base: Surpassed 2.2 billion active devices.

Positive Points

• Apple Inc (NASDAQ:AAPL) reported revenue of $119.6 billion for the December quarter, up 2% from a year ago.

• Earnings per share (EPS) was $2.18, up 16% from a year ago and an all-time record.

• Revenue records were achieved across more than two dozen countries and regions, with strong double-digit growth in many emerging markets.

• Services set an all-time revenue record with paid subscriptions growing double digits year-over-year.

• The installed base of active devices surpassed 2.2 billion, setting a new record for Apple Inc (NASDAQ:AAPL).

Negative Points

• iPad revenue for the December quarter was down 25% year-over-year.

• Wearables, Home and Accessories revenue came in at $12 billion, down 11% from a year ago.

• The December quarter had one less week of sales compared to the previous year, impacting year-over-year comparisons.

• Revenue in China Mainland saw a mid-single-digit decline in constant currency terms for iPhone.

• The Americas region reported relatively flat performance, with concerns around elongating sales cycles.

Q & A Highlights

Q: Can you unpackage some of the Services drivers a bit for us? A: (Luca Maestri - Apple Inc. - CFO & Senior VP) Services revenue was an all-time record of $23.1 billion, up 11% year-over-year, with records in the Americas, Europe, and rest of Asia Pacific. Growth was broad-based geographically and across all Services categories, with records for cloud, payments, video, and advertising, and December quarter records for the App Store and AppleCare. The growth rate for the March quarter is expected to be similar to the December quarter.

Q: What details can you share about the new users you were able to onboard over the last 12 months? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Emerging markets have been key, with strong double-digit growth and records in India, Indonesia, Latin America, the Middle East, and other regions. The installed base has reached a record high, and Apple is doing a great job in these markets.

Q: What are your assumptions for Services growth in the March quarter? A: (Luca Maestri - Apple Inc. - CFO & Senior VP) The March quarter will face a couple of points of negative foreign exchange, and the compares for March are slightly more difficult than for December.

Q: Can you talk about the efforts to support the Vision Pro developer ecosystem? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Apple is excited about enterprise opportunities with Vision Pro, with innovative applications across various industries. SAP's support is significant, and Apple is looking forward to sharing more about its work in AI later this year.

Q: How are you thinking about the iPhone 15 cycle overall? A: (Timothy D. Cook - Apple Inc. - CEO & Director) iPhone revenue was up 6% year-over-year, with strong performance in various regions and an all-time record for iPhone upgraders. The installed base hit a new all-time high, and customer satisfaction for iPhone 15 is at 99%.

Q: How would you measure the success of Vision Pro over time? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Each product has its own journey, and Apple is excited about Vision Pro's potential. The product will be reported in the Wearables category, and its success will be measured over time.

Q: What are you seeing in China right now? A: (Timothy D. Cook - Apple Inc. - CEO & Director) In China Mainland, iPhone was down mid-single digits in constant currency. However, there was solid growth in upgraders, and Apple was the top brand for the full year and December quarter according to IDC.

Q: What are some of the key updates around the App Store in Europe post the DMA implementation? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Apple announced changes including alternate billing opportunities, alternate app stores, and opening NFC for new capabilities. These changes will be in effect beginning in March and apply to the EU market, which represents roughly 7% of global App Store revenue.

Q: How are you thinking about the product gross margins going forward? A: (Luca Maestri - Apple Inc. - CFO & Senior VP) Product gross margins increased due to favorable mix and leverage, partially offset by foreign exchange. The guidance for total company gross margin is 46% to 47%, which is an additional expansion from the December quarter.

Q: How do you think about Apple's future in terms of consumer vs. enterprise focus? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Apple can focus on both consumer and enterprise markets. Employees increasingly choose their own technology, which benefits Apple's products like Mac, iPad, and Vision Pro.

Q: What are you seeing in the Americas market? A: (Timothy D. Cook - Apple Inc. - CEO & Director) In the U.S., iPhone revenue grew, and the installed base hit an all-time high. iPhones were among the top-selling smartphones, and customer satisfaction was high.

Q: How do you think about the differences in macro conditions by region? A: (Luca Maestri - Apple Inc. - CFO & Senior VP) The extra week a year ago makes comparisons distorted. The sequential progression from December to March this year is stronger than pre-COVID years.

Q: Is China still considered a growth market for Apple? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Tim Cook remains optimistic about China over the long term and feels good about hitting a new installed base high and solid growth in upgraders.

Q: Do you believe in the edge thesis for AI and processing on smartphones? A: (Timothy D. Cook - Apple Inc. - CEO & Director) Tim Cook believes there is a huge opportunity for Apple with generative AI and AI.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.