Apple saw its profits rise during its fiscal third quarter, driven by iPhone sales and Apple Services.
The company posted a June quarter revenue record of US$83 billion, up 2% year over year, and quarterly earnings per diluted share of US$1.20. This beat Wall Street’s expectation of $82.81 billion and $1.16 per share, but still was lower than the EPS of $1.30 it posted in the fiscal third quarter of 2021.
That caught the attention of Wedbush analysts Daniel Ives and John Katsingris. The firm reiterated its 'Outperform' rating and $200 price target for Apple following the results. Shares of Apple traded more than 3% higher at $162.42 shortly after the opening bell.
"Last night Apple delivered a robust June quarter that will be the focus of the tech universe as the barometer for Cupertino is a major positive for the Street digesting this results,” the analysts said in a note to clients. "The Street was waiting for any signs of demand issues from Apple and instead got the opposite. Clearly a softer macro will negatively impact Apple and the broader tech ecosystem, however baked into the stock was a much different negative narrative than the one we heard from Cook.”
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iPhone revenue came in at nearly US$40.7 billion, compared to $39.6 billion in 3Q 2021, and Services increased to $19.6 billion from 3Q 2021’s $17.5 billion.
“This quarter’s record results speak to Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers,” Tim Cook, Apple’s CEO said in the earnings statement. “As always, we are leading with our values, and expressing them in everything we build, from new features that are designed to protect user privacy and security, to tools that will enhance accessibility, part of our longstanding commitment to create products for everyone.”
“Our June quarter results continued to demonstrate our ability to manage our business effectively despite the challenging operating environment. We set a June quarter revenue record and our installed base of active devices reached an all-time high in every geographic segment and product category,” said Luca Maestri, Apple’s CFO. “During the quarter, we generated nearly $23 billion in operating cash flow, returned over $28 billion to our shareholders, and continued to invest in our long-term growth plans.”
The services segment was banking on the increasing popularity of the App Store. Apple has more than 825 million paid subscribers across its services portfolio, which includes the likes of Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One. For example, Apple TV+ won worldwide rights to broadcast Major League Soccer for 10 years, starting from 2023.
Going forward, Apple's future results depend in no small part on the next iPhone cycle.
“Looking ahead, we believe the key to Apple’s success over the next 6-12 months will be the company’s ability to capitalize on the iPhone upgrade cycle while staying on track for the fall of 2022,” Wedbush analysts wrote. “...We estimate roughly 225 million Apple customers have not upgraded their iPhones in 3.5 years, creating a strong pent-up demand story with iPhone 14 despite the darkening global macro backdrop.”
-- This story has been updated to include broker comment --
Contact the author at susie@proactiveinvestors.com