Apple: The pillar of the US stock market has stabilized

Apple (AAPL.O) On August 2, 2024, Beijing time, released the financial report for the third quarter of the 2024 fiscal year (ending in June 2024) after the US stock market closed.

1. Overall Performance: Revenue & Profit, Better Than Market Expectations. In this quarter, Apple achieved revenue of $85.8 billion, a year-on-year increase of 4.9%, exceeding market expectations ( $84.46 billion). The increase in revenue this quarter was mainly driven by the growth of iPad and software services business. Apple's gross margin was 46.3%, an increase of 1.8 percentage points year-on-year, slightly better than market expectations (46.1%). The gross margin of the software services business this quarter remained at a high level of 74%.

2. iPhone: Price Reduction to Maintain Volume and Stop Decline. Although iPhone shipments returned to growth this quarter, the performance was slightly below the overall market. Dolphin estimates that the average selling price of Apple's smartphones decreased by 5.3% year-on-year, and this quarter stabilized iPhone shipments through price promotions and other strategies.

3. Other Hardware Besides iPhone: iPad Becomes the Largest Growth Driver. This quarter, driven by new products, the quarterly revenue of the iPad business returned to above $7 billion, becoming the largest source of growth for the company this quarter. In addition, Mac and other hardware businesses such as wearables also performed in line with market expectations this quarter.

4. Software Services: Reaching a New High. The revenue of software services this quarter was $24.2 billion, exceeding market expectations ($23.96 billion). This quarter, the revenue of the software business reached a new high, and the gross margin continued to maintain a high level of 74% . The growth of the software business mainly comes from user retention and the increase in per-user revenue. With sustained high-margin growth, the software business is increasingly impacting the profits of $Apple(AAPL.US) company.

Dolphin's View: Apple's financial report this time is still good.

Both revenue and net profit are better than market expectations. Although the mobile phone business is still declining, iPad and wearable devices have shown significantly better-than-expected performance. The gross margin of software services has remained stable at 74% for two consecutive quarters, leading to better-than-expected performance in the company's profit this quarter.

Specifically, this financial report has highlights and flaws.

1) The non-iPhone business is a highlight: ① The iPad, benefiting from the release of new products this quarter, drove downstream demand recovery and was the main source of growth this quarter; ② The performance of the Mac business and wearables and other devices, although greatly affected by industry demand, Apple's performance is slightly better than the overall market;③ Service Business: While continuing to grow, the gross profit margin also remains at 74%;

2) Flaws in iPhone Business: As the largest source of revenue for the company, the iPhone business declined by 0.9% this quarter. Although the company managed to halt the decline through price reductions and promotions, it still slightly lags behind the overall market performance.

Furthermore, the company's outlook for the next quarter is in line with market expectations, " Fourth-quarter revenue growth is similar to the third quarter, with gross margin ranging from 45.5% to 46.5%".

Overall, Apple Inc. remains relatively stable in its operations. Despite shortcomings in the iPhone business, the company is able to adjust its strategies promptly, showing relatively strong risk resistance. Apple Inc. still maintains single-digit growth in performance, but the current P/E ratio of the company is around 30 times, which already includes market expectations for the company's AI terminal and software monetization capabilities improvement. While this financial report did not disappoint, it also did not bring much anticipation. Further increase in the company's stock price will still require more waiting for subsequent new product launches and attention to whether AI can truly bring a significant iPhone upgrade wave next year.

For a detailed analysis of Apple's financial report by Dolphin Jun, please see below:

I. Overall Performance: Revenue & Profit, Better than Market Expectations

1.1 Revenue Side: In the third quarter of fiscal year 2024 (2Q24), Apple Inc. achieved revenue of $85.8 billion, a year-on-year increase of 4.9%, slightly better than the market consensus expectation ($84.46 billion). The improvement in the company's revenue this quarter was mainly driven by the growth of iPad and software services business. Although there was a decline in revenue in Greater China, other regions showed varying degrees of growth.

Looking at hardware and software:

1) Apple Inc.'s hardware business growth rate this quarter was 1.6%. Hardware revenue returned to growth this quarter, with the strong recovery of the iPad business directly halting the decline in hardware revenue, despite the 0.9% decline in the iPhone business;

2) Apple Inc.'s software business continued to grow by 14.1% this quarter, maintaining double-digit growth. Software business has a certain risk resistance. Even in the situation of relatively sluggish hardware revenue, software services have consistently maintained growth momentum.

Looking at various regions: Apple still experienced a decline in Greater China this quarter, while other regions showed growth to varying degrees. The company faces challenges in Greater China due to insufficient market demand and intensified competition. Specifically, the Americas region is Apple's largest source of revenue, growing by 6.5% this quarter;And the revenue in the Greater China region once again fell by 6.5%.

1.2 Gross Margin: In the third quarter of the 2024 fiscal year (2Q24), Apple's gross margin was 46.3%, an increase of 1.8 percentage points year-on-year, slightly better than the market consensus (46.1%). The company's gross margin continued to rise, mainly driven by the growth of the software business.

Dolphin Jun analyzes the software and hardware gross margins separately:

Apple's software gross margin remained high at 74% this quarter, which was the main source of the company's gross margin improvement this quarter. The hardware gross margin fell seasonally to 35.3% this quarter, mainly affected by promotional policies such as price reductions.

1.3 Operating Profit: In the third quarter of the 2024 fiscal year (2Q24), Apple's operating profit was $25.4 billion, an increase of 10.2% year-on-year. The growth in Apple's operating profit this quarter was driven by the increase in revenue and gross margin.

This quarter, Apple's operating expense ratio was 16.7%, an increase of 0.3 percentage points year-on-year. Both sales and research and development expenses increased year-on-year this quarter.

II. iPhone: Price cuts to maintain sales volume and stop the decline

In the third quarter of the 2024 fiscal year (2Q24), iPhone business revenue was $39.3 billion, a decrease of 0.9% year-on-year, in line with market expectations ($39 billion). This quarter, while the global smartphone market saw a single-digit increase in shipments year-on-year, the company's mobile phone business still declined, mainly due to price reductions and promotions.

Dolphin Jun analyzes the main reasons for the decline in iPhone business this quarter from the perspective of quantity and price relationship:

1) iPhone Shipment Volume: According to IDC data, the global smartphone market in the second quarter of 2024 increased by 7.6% year-on-year. Apple's shipment volume growth this quarter is around 6.4%, slightly lagging behind the overall market;

2) iPhone Average Selling Price: Combining iPhone business revenue and shipment volume calculations, the average selling price of iPhones this quarter is around $869, a 5.3% year-on-year decrease. Due to the less than ideal performance of the iPhone 15 series after its release, the company implemented price reduction promotions this quarter, which, while boosting sales, led to a decrease in the average selling price of iPhones.

III. Other Hardware Besides iPhone: iPad Becomes the Largest Growth Driver

3.1 Mac Business

In the third quarter of the 2024 fiscal year (2Q24), Mac business revenue was $7 billion, a 2.5% year-on-year increase, in line with market expectations ($6.98 billion) .

According to IDC's report, global PC shipments in this quarter increased by 5.4% year-on-year, while Apple's Mac shipments increased by 7.5% year-on-year this quarter, with the company's performance slightly better than the overall market. Combining company and industry data, it is estimated that the average selling price of Macs this quarter was $1230, a 4.7% year-on-year decrease.

3.2 iPad Business

In the third quarter of the 2024 fiscal year (2Q24), iPad business revenue was $7.2 billion, a 23.7% year-on-year increase, exceeding market consensus ($6.63 billion) . The release of new iPad models in May drove a resurgence in the iPad business, pushing quarterly revenue back above $7 billion. The new generation iPad Pro switched to OLED screens and upgraded directly from M2 to M4, driving market demand.

3.3 Other Hardware such as Wearables

In the third quarter of the 2024 fiscal year (2Q24), revenue from other hardware such as wearables was $8.1 billion, a 2.3% year-on-year decrease, outperforming market consensus ($7.8 billion) **Although Apple's wearable and other hardware businesses continued to decline this quarter, the decline narrowed significantly. Looking at Qualcomm's IoT business, which fell by 8.5% year-on-year, overall market demand remains sluggish, but Apple's performance is relatively better than Android.

IV. Software Services: Setting a new record

In the third quarter of the 2024 fiscal year (2Q24), software services revenue reached $24.2 billion, a year-on-year increase of 14.1%, exceeding market expectations (239.6 billion U.S. dollars). The software business is the most stable part, with revenue continuing to grow. The growth of the software business mainly comes from user retention and increased per-user revenue.

In software services, the most noteworthy aspect is the gross profit margin level of software services. In this quarter, the gross profit margin of software services reached 74%, remaining at a high level, and has stayed above 70% for 12 consecutive quarters. With a continuously growing high gross profit margin, the impact of the software business on the company's profits is increasing.

Dolphin Research on Apple's historical articles:

Earnings Season

May 3, 2024 earnings review "Apple: iPhone sales stagnant, unveils buyback weapon"

February 2, 2024 conference call "Steady increase in hardware gross margin, venturing into AI (Apple FY24Q1 conference call)"

February 2, 2024 earnings review "Apple lying flat, why enjoy a 30x PE ratio?"

November 3, 2023 conference call "Apple: A lackluster next quarter (FY23Q4 conference call)"

November 3, 2023 earnings review "Apple: A stagnant 'cash cow', worth a 30x PE ratio?"

August 4, 2023 earnings review "Apple: Barely holding on, relying on India for salvation?"2023 August 4th Conference Call "India Market, Breaking Historical Records (Apple FY23Q3 Conference Call)"

2023 May 5th Financial Report Review "Apple: Turning the Tide, the True 'King of Machines'"

2023 May 5th Conference Call "Apple's Turnaround, Is It All Thanks to Emerging Markets like India? (Apple FY2023Q2 Conference Call)"

2023 February 3rd Financial Report Review "Apple: Finally Facing the Thunder Wrapped Around It"

2023 February 6th Conference Call "Limited Demand Impact, Guiding Confidence Continuation (Apple FY2023Q1 Conference Call)"

2022 October 28th Conference Call "Apple: Off-Season Not Prosperous, Even the 'Roll King' Can't Escape Decline (FY2022Q4 Conference Call)"

2022 October 28th Financial Report Review "Apple: The Only Giant Who Hasn't Fallen, How Much Longer Can It Last?"

2022 July 29th Conference Call "With Only iPhone Business Covering Shame, How Will Management Explain (Apple Conference Call)"

2022 July 29th Financial Report Review "The Slightly Growing iPhone Has Become Apple's Last 'Fig Leaf'"

2022 April 29th Conference Call "Various Factors Troubling, Apple Gives Soft Guidance (Conference Call Summary)"

2022 April 28th Financial Report Review "Apple, Making Crazy Money, Should Worry About Growth! | Financial Report Season"2022 年 1 月 28 日电话会《Apple: Supply Crisis Eased, Innovation Ignites True Technology (Conference Call Summary)》

2022 年 1 月 28 日财报点评《Apple's Hard Strength, Sweet and Fragrant Again | Reading Financial Reports》

2021 年 10 月 29 日电话会《After Falling Short of Performance Expectations, What Did Apple Management Discuss?》

2021 年 10 月 29 日财报点评《Falling Short of Expectations, Apple's Answer Sheet Embarrassed》

2021 年 7 月 28 日电话会《After Apple's Outstanding Performance Exceeds Expectations, Management's Interpretation (Complete Q&A Attached)》

2021 年 7 月 28 日财报点评《Apple: Definition of Excellence, Outstanding Performance Exceeds Expectations》

2021 年 4 月 29 日电话会《Apple 2021Q2 Performance Meeting Summary》

2021 年 4 月 29 日财报点评《Excellent Companies Always Exceed Expectations, Apple in the New Financial Quarter is Tough!》

2021 年 4 月 25 日财报前瞻《After Revealing Dominance in the First Quarter Report, Will Apple's New Financial Report Continue to Soar?》

深度

2022 年 12 月 29 日《Semiconductor Avalanche? True Elasticity Only After the Most Brutal Decline》

2022 年 11 月 11 日《Good Performance Still Leads to Decline, Is Apple Really Sweet?》

2022 年 6 月 17 日《Consumer Electronics "Matured", Apple Stands Firm, Xiaomi Struggles》June 6, 2022 " Stock Market Tremors, Was Apple, Tesla, NVIDIA Wrongly Killed?"