With its latest quarterly report, Apple’s next big thing — its services business — remained a source of strength for the tech giant as it continues to deal with signs of ongoing weakness affecting iPhone sales.
After U.S. stock markets closed Tuesday, Apple reported services revenue of $11.45 billion for its fiscal second quarter, a 16% gain over the same period a year ago. For Apple, services include items such as subscriptions to Apple Music and iCloud storage packages, as well the company’s cut of purchases from its App Store.
However, Apple said sales of iPhones remain down, with sales falling to $31.05 billion from $38.03 billion in the year-ago quarter.
Still, with services giving Apple a boost, Apple’s shares rose in after-hours trading, climbing by 5% to $210.62, as the company’s overall results managed to surpass Wall Street analysts’ forecasts.
“Services remain a bright spot for Apple as it continues to grow and deliver solid profits to Apple’s bottom line,” said Tim Bajarin, president of tech research firm Creative Strategies. “Even with iPhone sales down slightly year-over-year in this quarter, Apple is still making a lot of money for them and their shareholders.”
Apple said it earned $2.46 a share, on $58 billion in revenue, while analysts were expecting the company to report a profit of $2.37 a share, on sales of $57.49 billion. During the same quarter a year ago, Apple earned $2.73 a share, on $61.14 billion in revenue.
It was Apple’s first quarterly business update since it unveiled a new slate of subscription-based services in March, including its upcoming Apple TV+ streaming TV offering that will go live this fall. The company has yet to disclose how much it will charge for an Apple TV+ subscription. It also recently launched a new subscription-based news and magazine offering called Apple News+ that costs $9.99 a month for unlimited access to 300 newspapers and magazines.
Speaking on a conference call, Apple CEO Tim Cook said the quarter’s results reflected the company’s “culture of flexibility” and its “commitment to innovation and long-term thinking.”
Cook noted that in addition to the growth in its services business, the company’s iPad sales are also on the rise. Revenue from the sale of the tablets climbed by almost 22%, to $4.87 billion in the quarter.
Cook said that while iPhone sales fell from a year ago, the declines were smaller in the final weeks of the quarter. “I like direction we are headed with iPhone,” he said. “Our goal is to pick up the pace.”
Mac sales were also down from a year ago, slipping by more than 4%, to $5.5 billion.
Analysts were encouraged by Apple’s third-quarter outlook, as the company said it expects sales in what is typically its slowest business period of the year to be between $52.5 billion and $54.5 billion, while Wall Street was looking for Apple’s third-quarter sales to reach just shy of $52 billion.
“The guidance was a jaw dropper in terms of strength and speaks to Cook and Cupertino getting back their sea legs after the December (quarter) debacle,” said Dan Ives, managing director at Wedbush Securities.
Haris Anwar, senior analyst with Investing.com, said Apple’s forecast “indicates that the slowdown in iPhone sales wasn’t as deep-rooted as many analysts had thought. That revival, coupled with the company’s sharp focus on diversifying its revenue base, are good enough reasons to make investors excited about its shares once again.”
The company also moved to make investors happy by saying it has authorized another $75 billion to repurchase Apple stock, and that it is raising its quarterly dividend payment to 77 cents a share.
