Apple Stock Falls After Earnings Topped Estimates. Here’s Why.

Apple sees overall revenue for the December quarter being about flat with the year-ago period; consensus estimates have called for revenue to increase 5% from a year earlier.

Apple CEO Tim Cook said on a conference call with analysts that the company faced an “uneven macroeconomic environment” in the September quarter, but continued to “invest in the future and manage for the long-term.”

Asked about Apple’s work on generative AI, Cook said the company has work going on in that area. “You can bet that we’re investing, investing quite a bit,” but he declined to provide details on what form that work might take.

For the fiscal fourth quarter ended Sept. 30, Apple posted revenue of $89.5 billion, down 1% from a year ago, but slightly above the Wall Street consensus forecast of $89.3 billion. It was the fourth consecutive quarter that Apple has reported declining year-over-year revenues.

Profit was $1.46 a share, a little above the Wall Street consensus of $1.39 a share as measured by FactSet. Gross margin was 45.2%, a little ahead of the guidance range of 44% to 45%.

For the quarter, iPhone revenue was $43.8 billion, up 3%, and right in line with Street expectations.

Services revenue was the biggest positive surprise, up 16% to $22.3 billion, above consensus at $21.4 billion.

Wearable, home, and accessories revenue of $9.3 billion was off 3%, and about $200 million below Street estimates. Mac revenue plunged 34% to $7.6 billion, coming in $900 million shy of Street expectations, while iPad revenue was $6.4 billion, down 10%. Overall product revenues were $67.2 billion, down 5% from a year ago.

China revenue was $15.1 billion, down 2.5% from the year-ago quarter, while the Americas region had revenue of $40.1 billion, up less than one percent. European revenue was down slightly to $22.5 billion. Japan revenue was off 3.4%, and revenue from the rest of Asia was about flat at $6.3 billion.

For the full fiscal year, Apple revenue fell 3%, to $383.3 billion, with profit up two pennies to $6.13 a share.

The company said it now has over 1 billion paid subscriptions, with an installed base of more than 2 billion devices.

Apple ended the quarter with $51 billion in net cash. The company repurchased $15.5 billion in stock in the quarter.

Apple CFO Luca Maestri said on the conference call that the company would have about a 1 percentage point hit from currency in the December quarter and noted that the quarter would have 13 weeks, versus 14 weeks in the year earlier period. He noted that the extra week last year boosted revenue by about 7%.

Maestri said that iPhone revenue is expected to grow year over year, and he said Mac revenue would accelerate from the September quarter. But he also said growth in both iPad and Wearables would decelerate from the September quarter. Average services revenue per week is expected to grow at a similar rate to the year-earlier quarter. Gross margin in the quarter is expected to be in the 45% to 46% range.

Wall Street consensus estimates had called for fourth-quarter revenue of $123.1 billion, but Apple’s guidance implied revenue in line with last year’s level of $117.2 billion.

Heading into the quarter, investors were looking for reasons to be optimistic on Apple’s important December quarter. But there have been reasons for worry. Apple faces growing competition for the iPhone in China from the Huawei Mate 60 Pro smartphone; there are concerns about tightening U.S. consumer spending; and lingering reports that iPhone 15 faces both lackluster demand and ongoing component shortages.

While Apple shares have appreciated 30% this year, the stock is off 13% since it reported June quarter results, amid worries about the lack of growth and mixed reports on demand for the iPhone 15. If the stock declines appreciably on the earnings report, Apple could be dethroned from its position as the market’s largest company by market cap by
Microsoft
(MSFT), which is up 40% this year, driven by investor enthusiasm for its AI software push.

On Monday, Apple held an unusual 30-minute evening launch event to unveil a new line of Mac processors—the M3—as well as updates to the MacBook Pro and iMac hardware lineup. But the Street found the upgrades to be more evolutionary than revolutionary, and the unusual timing—5 p.m. Pacific time—was greeted as an annoyance. The Street also found the timing – just a few days ahead of earnings – to be unusual. 

“The most irritated incoming calls we took last night were from money managers who now believe (tongue in cheek) that Apple hates families because they forced folks to leave the dinner table (or homework duties) to listen to their prerecorded event,” Needham analyst Laura Martin wrote in a research note about the event. “The odd timing, just 3 days before earnings, causes us to worry that laptop and iMac sales were weak in the September quarter. That would suggest that [the] launch was a way to mitigate any negative share price reaction, because Apple can focus on the future and reiterate how optimistic it is about unit sales of its new laptops and iMac products.” 

Write to Eric J. Savitz at [email protected]