Apple beats expectation led by service revenues; Stock slips in after hour trade

Apple (AAPL) reported its Q3 earnings, surpassing analyst expectations on both revenue and EPS. The company achieved a revenue of $85.78 billion, up 4.9% year-over-year, compared to the estimated $84.46 billion. EPS stood at $1.40, exceeding the forecasted $1.35. This performance was underpinned by notable metrics across all segments.

The iPhone segment generated $39.30 billion in revenue, slightly ahead of the $38.95 billion estimate but down 0.9% year-over-year. Mac revenue came in at $7.01 billion, surpassing the $6.98 billion expectation with a 2.5% year-over-year increase. The iPad segment showed significant growth, posting $7.16 billion in revenue, a 24% year-over-year increase, and beating the $6.63 billion estimate.

Shares of AAPL closed the session at $217.94. It rallied to $224 in initial reaction but failed to hold those gains. The stock dipped into negative territory, hitting an after hours low of $212.50 before settling. Shares are attempting to bounce back to break even on the conference call.

Service revenue was a highlight, increasing 14% year-over-year to $24.21 billion, above the $23.96 billion estimate. Wearables, home, and accessories also performed well, generating $8.10 billion, surpassing the $7.79 billion forecast despite a 2.3% year-over-year decline. These results demonstrate Apple's diversified revenue streams and robust ecosystem.

Geographically, Apple faced challenges in Greater China, with revenue declining 6.5% year-over-year to $14.73 billion, missing the $15.26 billion estimate. This decline was offset by stronger performance in other regions, leading to a 7% year-over-year growth in non-China businesses, compared to the 5% global revenue growth.

For Q4, Apple provided guidance anticipating similar revenue growth patterns compared to Q3, with expected gross margins between 45.5% and 46.5%, and operating expenses ranging from $14.0 billion to $14.2 billion. The company expects services to continue growing in double digits, despite a 1.5% foreign exchange headwind.

Apple declared a cash dividend of $0.25 per share, maintaining its commitment to returning capital to shareholders. During the earnings call, CFO Luca Maestri emphasized the expected Q4 performance, the rollout timing of Apple Intelligence, and potential improvements in China, where easier comps are anticipated.

Despite the decline in China, Apple’s non-China revenue growth indicates resilience. The upcoming AI features in the next iPhone, expected to drive a significant upgrade cycle, have investors optimistic. CEO Tim Cook highlighted the transformative potential of these AI tools, which will enhance user interaction with technology.

In summary, Apple's Q3 results demonstrated strong performance across most segments, with services and iPad segments particularly excelling. The company's guidance for Q4 remains positive, supported by robust service growth and strategic investments in AI. Despite some headwinds in China, Apple is well-positioned to maintain its growth trajectory and continue delivering value to its shareholders.