Disclosure: I own a small number of
At 2PM / 5PM ET, Apple reported its Q3 2015 financial results. Below is the liveblog from the earnings call:
5:59PM ET - The earnings call has concluded.
5:57PM ET - Towards the conclusion of the call, Cook said: "On the Watch, our June sales were higher than April or May."
5:54PM ET - A question was asked in regards to the demand of the iPhone as prices were raised in various geographies due to currency fluctuations. Maestri said that nearly every currency has weakened against the dollar with the exception of China. But it has been remarkable "how resilient iPhone sales have been." iPhone sales and marketshare have increased throughout the world.
5:50PM-5:53PM ET - A question was asked about concerns in China in regards to its economy. Cook said they are "extremely bullish" in China and will continually invest there. The volatility of the equity markets in China may cause issues in the near term, but Cook said he believes China will be one of Apple's largest markets in the future. "I think generally -- at least as we see it -- that this worry is overstated," said Cook. "We have our pedal to the metal" to getting 40 stores in China by the middle of next year. Citing a McKinsey study and his visits to China, Cook said that the upper-middle class in China is also rapidly growing -- which will help drive sales. Cook said that the McKinsey study projected the upper-middle class to grow from 14% to 54% over the 10 year period between 2012 and 2022.
5:46PM-5:50PM ET - A question was asked about the shift in strategic focus on the iPhone vs. other services like Apple Radio. "We think the phone has a lot of legs to it," said Cook. "There's tons of innovations left of the phone. I think we are in the early innings of it, not in the late innings." Cook said that Apple has a lot of "great teams" so they can do "more than one thing." But Apple still focuses on a smaller number of projects than many other companies at a macro level, which helps maintain that focus. Cook also said services like Apple Pay and Apple Music are "very important to us" and "I am still very bullish on iPad." He highlighted the upcoming features in the iPad like picture-in-picture and multitasking. The usage stats on iPad remains "unbelievably great." And Cook said that there is still plenty of opportunity for the iPad in emerging markets.
5:45PM ET - A question was asked about the iPhone replacement cycles compared to the 50% repurchase intent to the next highest brand measured. Cook said that the 86% iPhone retention cycle figure that was cited seems "low" internally, but the company said it was based on a third party source. Cook said: "There's a number of plans that people began signing up for in the last year that could change it," such as upgrade-anytime plans or one year leases -- which could help the upgrade rate.
5:41PM-5:44PM ET - A question was asked about the iPad and iPhone marketshare for the premium category within the U.S. For example, Apple has a high marketshare in tablets above $200 and smartphones above $600. Cook said: "Our job is to grow our product regardless of the price." He said when you look at the growth of the iPhone, it answers the question. The 87% growth in China is "unbelievable" along with the growth in markets "where it is not in the best of conditions."
5:40PM ET - Cook said that the Apple Watch supply still fell behind demand at the end of the quarter, but the Apple Watch still surpassed Apple's expectations. Apple plans to expand channels before the holiday season because the Apple Watch will be a top gift during the holiday season. Cook highlighted the customer satisfaction of the Apple Watch and said "I never go anywhere without the Watch."
5:35PM-5:37PM ET - Tim Cook was asked specifically about the Apple Watch numbers and whether it took off as fast as the company had hoped. Cook said that the company made a decision in September not to disclose the shipment numbers in the Apple Watch because they do not want to give insight to the competition on a product that "we worked really hard on." Cook hinted that if you look at the sequential and YOY revenue changes in the "other" category, the Apple Watch numbers could be deciphered -- especially because the aggregate balance of that category is shrinking.
5:32PM ET - A question was asked about the gross margin numbers for the September quarter and the impact of product transition costs. Maestri said that last year in Q4, the gross margin declined by 140 basis points sequentially so this year there is an expectation of about a 120 basis point decline. The factors that influence the decline includes foreign exchange environments and the strengthening of the U.S. dollar and a different mix of seasonality as Apple enters the back-to-school season.
5:30PM ET - Tim Cook - Cook added that Apple has observed the highest Android switcher rate this quarter. And the loyalty rate versus competition is an enormous gap. First time iPhone buyers have been very high numbers in countries like China, Russia and Brazil. The percentage of users that upgraded to an iPhone 6 and iPhone 6 Plus is 27% of the install base.
5:28PM ET - The call opened for questions - A question was asked about why YOY growth of the iPhone in the June quarter was worse over the past two years and why the channel inventory was drained. Cook said that Apple sold more units than expected and the company runs with just the amount of inventory that it thinks is needed. Cook said that the 35% growth of the iPhone is nearly three times the market.
5:25PM ET - Luca Maestri - Quarter ended with $202.8 billion in cash and marketable securities -- of which $181 billion was offshore. During the quarter, over $13 billion was paid to investors. Dividends and equivalents was $3.1 billion and $4 billion was spent on share repurchases. September quarter outlook: $49 and $51 billion in revenue expected compared to $42.1 billion during the same quarter last year. And between 38.5% and 39.5% gross margin is expected. Board of Directors declared cash dividend of 52 cents per share of common stock payable August 13th.
5:22PM ET - Luca Maestri - Retail and online stores saw customer visits go up 49% YOY. Apple Store app helped mobile traffic to online store equal out the desktop traffic for the first time. Global store count now at 456, of which 190 are outside of the U.S. And 40 stores are expected to be in place in greater China by the middle of next year.
5:21PM ET - Luca Maestri - Revenue from App Store increased over 24% and the number of transacting customers grew 19%, setting an all time growth record. Services growth was impressive in China where App Store revenue more than doubled YOY. Developers in China created 250,000 apps for China App Store. Revenue from "other" products are up 49% over last year and the contribution from Apple Watch accounted for "well over 100% growth of the category." It helped offset the decline of iPod sales.
5:19PM ET- Luca Maestri - Maestri said there is great momentum in the enterprise market. United Airlines renewed its iPad program and made a strategic decision to provide iPhones to over 20,000 flight attendants. United will introduce new apps in the near future to improve flight operation integration. IBM released several new apps for iOS for the retail, healthcare, HR and sales markets. IBM now has 35 mobile-first for iOS apps in its catalog. Services category hit $5 billion in revenue, an increase of 12% over last year.
5:17PM ET - Luca Maestri - 45.7 million iPhones sold - 35% YOY growth. iPhone sales more than doubled in Germany, Malaysia, Korea and Vietnam. iPhone sales increased more than 45% in several countries including Italy, the Netherlands and Spain. Maestri said 4.8 million Macs were sold -- 9% YOY growth. Growth driven by portables and they are "delighted" by customer feedback of the new MacBook. 97% customer satisfaction rate for iPad Air 2 -- when consumers planning to buy a tablet were surveyed, over half were planning for an iPad. Over 70% for the corporate buyers. Maestri added that Apple does not participate in low-end tablet market, but it succeeds in its market.
5:15PM ET - Luca Maestri - Maestri is highlighting the financial figures, including profits, revenues and gross margins that are highlighted in the press release. Revenue for June quarter was $49.6 billion -- a 33% increase YOY largely due to iPhone, the intro of Apple Watch, Mac and App Store sales. Growth was "especially impressive in greater China" where revenue more than doubled YOY to over $13 billion. Emerging markets overall grew 79% to nearly $18 billion and represented 35% of total revenue. Diluted EPS were $1.85 -- which is a 45% YOY increase. Cash flow from operations was $15 billion.
5:13PM ET - Tim Cook - Last week, Apple launched Apple Pay in the UK. On day one, a roster of over a quarter million locations and major credit / debit cards from many of UK's banks were using Apple Pay. Apple Pay users in the UK are using it for the London Underground and Transports for London. American Express will be adding Apple Pay support for corporate cards next month. And leading into the school year, 700 universities across the U.S. will accept Apple Pay like Auburn Univ., Univ. of Kentucky, and Univ. of Oklahoma.
5:12PM ET - Tim Cook - The News app "will be the best news reading experience on any mobile device," said Cook. It will be able to personalize the reading experience with 25 leading publisher partners including CNN and Reuters. Apple Music launched in over 100 countries on June 30th. "Millions and millions of customers" are experiencing Apple Music with the 3-month trial period and the "numbers are growing substantially every day." About 15,000 artists signed up for Connect. Millions of people around the world tuning into Beats 1.
5:10PM ET - Tim Cook - The launch of Apple Watch was a highlight for the quarter. Preorders started in 9 countries on April 10th and the demand exceeded supply. The first orders were prioritized by delaying availability in its own retail stores. Total availability is now 19 countries for the Apple Watch. A 97% customer satisfaction rate for the Apple Watch was cited. Doctors across the world are using data from Apple Watch to help improve people's lives, including Nebraska Medicine. There are over 8,500 third party apps are available for Apple Watch. In Apple Watch OS 2, developers will be able to build "richer" apps that can utilize the heart sensor and accelerometer.
5:07PM ET - Tim Cook - Apple achieved strong results without having to "reduce channel inventories" across its product lines by over 1 million units. Mac unit growth hit 9% in markets that are estimated to have contracted 12%. The growth was largely due to the new MacBook. Cook said over $5 billion was generated in total service revenues, which is a new all time record. Within services, the App Store produced its best quarter ever with revenues growing 24%. The feedback for the Apple Watch has been positive. Cook said that the growth in greater China was “outstanding” — the Mac App Store revenue more than doubled in China during the quarter.
5:06PM ET - Tim Cook - Revenue exceeded the high end of the guidance by $1.6 billion. iPhone established a new June quarter record. iPhone unit sales grew 35%, which is 3 times the normal growth of the smartphone market overall. Marketshare gained in all geographic segments. iPhone revenue grew up 59%.
5:05PM ET - Tim Cook - Cook said he is proud to report "record June quarter results with revenues of $49.6 billion and earnings of $10.7 billion." The YOY growth rate in the fiscal third quarter accelerated over the first half of fiscal 2015. Revenues up 33% which is the fastest growth rate in over 3 years. EPS up 45%. CEO Tim Cook said that Apple surpassed internal expectations and set a third quarter record.
5:00PM ET - The call is now underway.
Update - 4:40PM ET: Before the call, the numbers have been reported
Apple posted quarterly revenue of $49.6 billion and quarterly profit of $10.7 billion at $1.85 per diluted share. Gross margin was 39.7% compared to 39.4% in the year ago quarter. Apple reported that its operating expenses were between $5.85 billion and $5.95 billion. A $0.52 per share cash dividend of Apple's common stock has been declared, which is payable on August 13th.∂
The "Other" category -- which includes the Apple Watch, Apple TV and Beats headphones -- hit $2.6 billion in revenue. That figure is up from $1.7 billion last quarter. Apple sold 10.9 million iPads, 4.7 million Macs and 47 million iPhones in the third quarter compared to 12.6 million iPads, 4.5 million Macs and 61.1 million iPhones in the last quarter.
“We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch,” said Tim Cook, Apple’s CEO, in a statement. “The excitement for Apple Music has been incredible, and we’re looking forward to releasing iOS 9, OS X El Capitan and watchOS 2 to customers in the fall.”
What to look for during the third quarter financial results
Apple is not going to separate Apple Watch sales into its own category. Instead, it will be placed in the “other devices” category with iPods, Apple TVs, Beats headphones, etc. Apple will likely discuss the results of the "other devices" category, but may not specify the Apple Watch unit numbers.
Analysts are expecting iPhone sales to hit $29.9 billion compared to $19.8 billion one year earlier, according to FactSet via MarketWatch. iPhone sales will be largely driven by its high demand in China. In the last quarter, Apple’s revenue in greater China (China, Hong Kong and Taiwan) increased 71% — largely due to the Lunar New Year shopping rush.
FactSet reported that analyst expectations for total revenue is $49.2 billion, up from $37.4 billion during the same period last year. Wall Street is expecting Apple to report an adjusted earnings per share (EPS) of $1.89, which is up from $1.40 in the same period last year. Analysts are forecasting total revenue to hit $49.31 billion, up from $37.43 billion during the same period last year. Apple beat Wall Street non-GAAP EPS estimates for 11 straight quarters, according to MarketWatch.
The iPhone -- which accounted for almost 70% of Apple's revenue in the last quarter -- is expected to sell between 48 million and 50 million units compared to 35.2 million in the same period last year. But iPhone sales tend to drop in the third quarter compared to other quarters. That is because consumers tend to hold off on buying iPhones since they are waiting to buy the new line of iPhones which start selling in September or October.
The Wall Street consensus recommendation for Apple stock is the equivalent to “buy.” Even though Apple’s stock has remained flat from the last earnings report, it is up nearly 40% from a year ago. FactSet said that the average 12-month stock target for Apple is $147.62 based on a poll of over 40 analysts. Piper Jaffray Managing Director Gene Munster has an "overweight" rating on the stock with a price target of $162 and Cantor Fitzgerald has a "buy" rating with a $195 target. Apple provided guidance for the fiscal third quarter in April at a range of $46-$48 billion in revenue and between 38.5% and 39.5% in gross margins.
