Apple shares slide 4% in after hours; China, Service revs light but are they better than feared?

$AAPL(AAPL)

Apple Inc. (AAPL) has demonstrated resilience with solid results, despite facing foreign exchange (F/X) headwinds and a decline in revenue from its Greater China market. 

Apple exceeded Q1 expectations, beating both earnings and revenue estimates. Earnings per share stood at $2.18, which was $0.08 higher than the FactSet Consensus. Revenues rose 2.1% year-over-year, reaching $119.6 billion, outperforming the estimated $117.99 billion. This marked AAPL"s first YoY revenue growth in five quarters. 

Within the Q1 earnings report, Apple's iPhone revenue of $69.7 billion also surpassed both Street estimates of $67.9 billion and the $65.8 billion recorded in the previous year. The services segment reported revenue of $23.2 billion, fell slightly short of expectations, reflecting annual growth of 11%. 

iPad revenue declined by 25% to $7.02 billion, while wearables, home, and accessories saw an 11% decline to $11.95 billion. In terms of services, Apple's revenue reached $23.12 billion, an impressive 11% annual growth. However, the Greater China market posed challenges with revenue of $20.82 billion, down 13% year-over-year.

However, Apple faced a decline in revenue from its Greater China market, with a year-over-year drop of 13.1% in Q1. Reveneus for Chin were $20 billion, falling short of the $23 billion expected. CEO Tim Cook attributed this decline to the strength of the US dollar

Apple's base of active devices reached an impressive milestone of 2.2 billion, signing a 10% increase from 2022. This growth, in comparison to the previous year's 11% growth off of a higher base, demonstrates the company's ability to maintain strong customer commitment. AAPL's strategy of cultivating a committed customer base bodes well for future device and services purchases, highlighting the strength of Apple's product flywheel.

The company's total revenue and iPhone revenue for the quarter are expected to be similar to last year's figures. 

Apple's services segment, which experienced significant growth in the previous quarter, is anticipated to maintain a similar rate of growth. 

During Q2, Apple witnessed an all-time high in its Mac install base, driven primarily by the M3 models. Additionally, the company achieved record-breaking revenue in several geographic markets, underscoring its ability to effectively penetrate and retain customers globally. 

Furthermore, the iPhone install base also reached an all-time high, indicating strong customer loyalty and potential for future device upgrades. 

The company projects a Q2 gross margin of 46-47%, which demonstrates its ability to effectively manage costs and maintain profitability. 

Additionally, Cook emphasized Apple's focus on appealing an Apple Watch patent decision and stated that there were no discussions regarding licensing technology from Masimo (MASI). 

The company expects its total revenue and iPhone revenue for Q2 to remain similar to the previous year's Q2 performance, which was $94.8 billion. The FactSet consensus for Q2 2024 is $95.6 billion. Notably, Apple expects its services growth rate for Q2 to be consistent with the 11.6% growth seen in Q1. Apple projects a Q2 gross margin of 46-47%. 

Shares of AAPL are down approximately 4% following the report. Investors are concerned about the miss in China and the flat service revenues, both of which have been key drivers heading into this quarter. It will be interesting to see if investors shun AAPL in favor of stronger results from AMZN and META but we would view these AAPL figures as better than feared. We would like to see the stock regain the 200-sma ($182) which would make it more attractive from a technical standpoint.