Apple (AAPL – Free Apple Stock Report) shares are heading higher, back into the mid-$170s, after the tech behemoth posted better-than-anticipated results for the second quarter of fiscal 2018 (year ends September 29th). The stock had traded lower in the days leading up to the report, with investors concerned about an apparent slowdown in the global smartphone market. But Apple showed that its core iPhonefranchise remains a powerful cash cow, and that it has a wide and growing ecosystem of products and services.
For the March interim, share net came in at $2.73, topping our $2.69 estimate and Wall Street's consensus view of $2.67, and rising 30% above the year-earlier tally. Moreover, iPhone unit sales of 52.2 million were better than many analysts had feared, suggesting that the smartphone space, while highly competitive, is still far from saturated. The top-tier iPhone X performed especially well (it has been the best-selling model since being released last November), despite rumors that it has been struggling to gain traction. And the total iPhone installed base continued to expand at an impressive, double-digit clip. This augurs well for future upgrade cycles, as well as the broader iPhone ``halo effect.'' Indeed, the huge user base means that Apple should have an easier time selling its other products and high-margined services.
The services business, notably, including offerings like Apple Pay and iCloud storage, registered a 31% year-over-year revenue advance during the fiscal second quarter, and continues to be a highlight of the growth story here. And sales from the ``other products'' category, featuring wireless AirPods, the Apple Watch, and the company's new HomePod, jumped 38%. These were great results, demonstrating that the company is much more than just a smartphone maker.
Meanwhile, Apple continues to leverage its iconic brand overseas. In fact, international sales, led by big gains in Japan and Greater China, now account for almost two-thirds of the top-line mix. And we expect this momentum to persist, with CEO Tim Cook voicing optimism that trade tensions with China can be resolved. This is important, since that country represents a huge addressable market for the company.
All in all, it was a fine showing from Apple, which continues to execute well, build out its ecosystem, and return more of its cash hoard to shareholders. (The company announced a new $100 billion buyback program and a 16% hike in its quarterly dividend.) In terms of estimates, we are increasing our share-net calls for fiscal 2018 and fiscal 2019 by $0.20 each, to $11.40 and $12.90, respectively. We continue to like the Dow component for both short- and long-term investors, and consider it one of the better bargains in the stock market today.
About the Company: Apple Inc. is one of the world’s largest makers of PCs and peripheral and consumer products, such as the iPod digital music player, the iPad tablet, the iPhone smartphone, and the Apple Watch, for sale primarily to the business, creative, education, government, and consumer markets. It also sells operating systems, utilities, languages, developer tools, and database software.
— Justin Hellman
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
