A Look at Apple's June-Quarter FY22 Earnings
29 JULY 2022 - If you were hoping to land on some sort of economic certainty after Apple’s June-quarter earnings call, you’ve come to the wrong timeline.
Apple’s press release on the numbers says the company “posted a June quarter revenue record of $83.0 billion…”
The pros followed by Apple 3.0 were looking for revenue to grow 3% y-o-y, instead they got 2%. Those same pros were only looking for EPS of $1.14. What they got instead was a buck-20. Again, this a small number of a few analysts - a narrower gauge than analysts surveyed by FactSet. A piece from the Wall Street Journal (via Apple News+) says they undershot as well, having predicted earnings per share of $1.16.
With a lot going against the company, including supply constraints, foreign exchange headwinds, and bugging out of Russia, Apple made the historic quarter thanks to records in the Americas, Europe, and in the rest of Asia Pacific region, as well as records in emerging markets with “strong double-digit growth in Brazil, Indonesia, and Vietnam and a near doubling of revenue in India.” In fact, revenue was so good, Apple was able to come in under the $4B to $8B revenue headwind about which the company warned on the March-quarter earnings call.
There was not a lot of rhetorical preamble. While Apple CEO Tim Cook did acknowledge #TheseTimesInWhichWeLive, that was pretty much just a springboard into Apple product and performance. COVID-19, people in Ukraine living through the Russian onslaught, crazy days economically - “it is all the more reason why we are working hard to help our customers navigate the world as it is while empowering them to create the world as it can be,” said Apple’s CEO. With that, he headed into product.
It was a record quarter for iPhone according to CEO Cook - both in terms of revenue and switchers. The Apple 3.0 pros had expected iPhone revenue of $37.7B - a drop of nearly five-percent. Instead, iPhone delivered revenue of $40.7B - an increase of 3% according to Apple CFO Luca Maestri. As CEO Cook said about the company as a whole, CFO Maestri said iPhone set records in both developed and emerging markets. And customers satisfaction is almost off the chart - pegged in the US at 98%, according to the latest numbers from 451 research.
Turning to the Mac, Apple’s CEO waxed rhapsodic about the MacBook Air and 13-Inch MacBook Pro - now powered by Apple’s M2. The Apple 3.0 Pros had expected Mac revenue of $8.5B. That meant a big miss on someone’s part. Mac revenue came in at $7.4B - a drop of 11%. CEO Cook pointed out that Mac remains supply constrained, though he said the company is encouraged by customer demand. While sales seem to have been down, CFO Maestri said Apple’s investments in Mac have helped drive significant growth in the installed base. And it just keeps being the way - “nearly half of the customers purchasing a Mac [last quarter] were new to the product,” according to the CFO.
Still seeing supply constraints as well was iPad. Or… were iPads. The Apple 3.0 pros had expected iPad revenue of ~$7B. iPad beat that, delivering revenue of ~$7.2B. Still - revenue for the category was down down 2% versus the same quarter a year ago - due to a supply constraint/foreign exchange headwind combo. As with Mac and iPhone, CFO Maestri said the iPad installed base reached a new all-time high last quarter. And, as with the Mac - half the people buying iPad last quarter were new to Apple’s tablet.
On the Watch watch - the sweet silicon center of Apple’s Wearables, Home, and Accessories category, CEO Cook didn’t do numbers, unless you count the “9” in watchOS 9. He talked about the existing health aspects and the health improvements on the way, leaving CFO Maestri to address the 8% decline in WHA revenue. The Apple 3.0 pros had expected that to come in at $8.6B. The category delivered ~$8.1B. As with the rest of the business, there were several factors stacked against the category, including foreign exchange headwinds, uneven product launch timing this year versus last year, some supply constraints, and the overall macroeconomic woozy. Put on a happy face, though - the CFO says the “installed base of devices in the category hit a new all-time record,” and where Apple Watch is concerned, over two-thirds of people buying one last quarter were new to the product.
Setting our sights on Services, CEO Cook was back to talking numbers. Revenue for the June-quarter hit $19.6B, up 12% versus the same quarter a year earlier. That would still be a bit of a miss from the Apple 3.0 pros. They’d been looking for revenue of $19.75B. It still set a June-quarter record though, on the back of Apple TV+, Fitness+, Apple Arcade, Apple Music, and on and on and on. Once again, CFO Maestri said revenue for the category set “records in both developed and emerging markets and set all-time records in many countries around the world, including the U.S., Mexico, Brazil, Korea, and India.” All of that despite the foreign exchange headwinds, stopping sales in Russia, and macroeconomic uncertainty. Apple’s CFO listed a few reasons for the rise, including continued growth for the installed base and increased customer engagement with Apple Services. According to Mr. Maestri:
…transacting accounts, paid accounts, and accounts with paid subscriptions all grew double digits year over year. And paid subscriptions showed very strong growth. [Apple] now [has] more than 860 million paid subscriptions across the services on [its] platform, which is up more than 160 million during the last 12 months alone.
Though not a product category, Apple’s CFO did address the Enterprise. Using BofA and Wipro as examples, Maestri said that customers in the Enterprise market are investing in Apple products as a way to attract and keep talent.
Surprising no one, the company did not offer financial guidance for the current quarter, but they did do that “directional insight” thing. The way Apple sees it, “year-over-year revenue growth will accelerate during the September quarter compared to the June quarter despite” significant foreign exchange headwinds. Services revenue will grow, but that growth will slow compared to the June-quarter, due to FX headwinds and the whole macro-thing. Stuff looks better on the product side though - or easier to make and get, anyway. Apple expects supply constraints to be lower than it experienced in the June quarter, according to the CFO.
Oh. And they’re returning money to shareholders, going next with a cash dividend of $0.23 per share of the Company’s common stock. That’ll be paid out on 11 August to shareholders of record as of the close of business on 8 August.
Let’s Turn Up The Lights…
With that the call was thrown open to questions.
If Apple’s earnings call had been a video call… it feels like there might have been a lot of shrugging and lifting of hands. You know… like when you don’t… know… for sure. I don’t mean that in a bad way, nor a disrespectful way. It’s just… a feel.
Evercore analyst Amit Daryananai started off the Qs. There’s macroeconomic concern out there. There’s concern around the consumer. Is that hitting Apple?
Stressing that he is not an economist, CEO Cook said they think they saw macro headwinds… I mean, they did - foreign exchange headwinds being an easy one to spot. When you look at product categories though, there was no obvious impact on iPhone (FX not included). When you look at Mac and iPad, that gets more difficult to tell. Supply was so constrained, it was really hard to test demand. Wearables, Home, and Accessories did show impact you could attribute to macro-eco-woozy. And yeah - okay - Search ads in the App Store were affected by macroeconomic concerns as well. That said, Cook said, overall - Apple was very happy with June-quarter results. Especially #InThisEconomy and given #TheseTimesInWhichWeLive.
Piper Sandler analyst Harsh Kumar had a couple of interesting questions. First - the way Apple keeps adding new Services, how are analysts supposed to model the future of Apple Services?
First of all, we’re going for the current quarter, not all quarters to come, indicated Maestri. That said, there are lots of moving parts to the Services story, two of the biggest being the installed base - the growing engine of the Services thing, and customer engagement. Of course, near term there are pockets of concern such as the macro-eco and tough compares thanks to “past us” staying inside to avoid the COVID. But - you know - look at the whole story and Apple feels good.
Question two was an old question with a twist: Given economic uncertainty, valuations for a lot of companies have gone down. Does that put Apple in a buying mood?
CEO Cook said what he usually says - That Apple is always looking. So far, they’ve focused on smaller acquisitions for talent and intellectual property. But - you know - if they find the right thing they’ll buy it.
Taking his first turn on an Apple call was Morgan Stanley analyst Erik Woodring. There’s usually a three-year cadence to iPhone upgrades, and we’re two-years into iPhone 5G. Does that put pressure on next year?
Cook’s answer was pretty wide ranging. First - June-quarter record for iPhone revenue and switchers, so - you know - go team. He then called back to the growth for iPhone seen in Indonesia, Vietnam, and India. According to Mr. Cook, “iPhone tends to be the engine for those markets, particularly at the beginning of creating the market there for Apple products.”
Wow - like some kind of halo effect or something.
Also, while some areas are chock-full-o-5G, globally, 5G penetration is pretty low. So - you know - room to run.
Woodring also had a question about Services growth in the current quarter - will the category maintain double-digit growth? Without saying “no,” CFO Maestri said, “not yes.” Growth for services last quarter was 12%. Apple’s going to see a 6% impact from foreign exchange year-on-year. Then there’s the whole Russia thing, so… he didn’t say “no,” but “not yes.”
Baird Research analyst Richard Kramer wondered about affordability of product, especially with the wacky macro. CFO Maestri said affordability is an important topic for Apple, one they’re addressing with initiatives like installment plans and trade-in programs.
One question that prompted a bit of discussion on Twitter came from JP Morgan analyst Samik Chatterjee. With all the macroeconomic uncertainty and concern around the consumer, is Apple tightening any belts or battening down some hatches? Mr. Cook’s response:
We believe in investing through the downturn. And so we'll continue to hire people and invest in areas, but we are being more deliberate in doing so in recognition of the realities of the environment.
The discussion that prompted: What did that mean exactly?
After two-and-a-half-years on “Planet COVID,” CitiGroup analyst “Gentleman” Jim Suva wondered whether Apple had picked up on changes in iPhone replacement cycles.
CEO Cook said that was hard to measure with exact precision. Really though, what Apple wants to do is make a product everybody loves and wants to trade up to. He says what Apple is focused on “is innovating like crazy and giving somebody something that they really want and see themselves using.”
This was not the last question, but it is where we will stop: Cleveland Research analyst Ben Bollin tried to get Apple’s CEO to talk about what Apple has learned around augmented reality and virtual reality. Cook bragged on the 14,000+ ARKit apps in App Store. Those are AR for iPhone and iPad. “And of course, we are in the business of innovation so we're always exploring new and emerging technologies,” said Cook. And, just like Forrest Gump - that’s all he had to say about that.
More in Store
Of course, that wasn’t all that happened. If you just can’t get, just can’t get, just can’t get enough - the call is up to replay on Apple’s Investor site and will be for the next couple of weeks. It is now available as a podcast and will be for the next couple of weeks. And a big, socially distanced kiss on the mouth to The Motley Fool for their transcript of Thursday’s call. Reading is fundamental, and the Fool is cool leaving that to you.
