Apple's Q4 Revenue Beats Estimates, But Shares Fall: AI Strategy Key

Apple's Q4 Revenue Beats Estimates, But Shares Fall: AI Strategy KeyNovember 1, 2023 Apple on Thursday after the market closed reported fiscal fourth-quarter earnings that beat analysts' expectations, but its shares fell about 2% in after-hours trading. The company reported revenue of $94

Apple's Q4 Revenue Beats Estimates, But Shares Fall: AI Strategy Key

November 1, 2023 Apple on Thursday after the market closed reported fiscal fourth-quarter earnings that beat analysts' expectations, but its shares fell about 2% in after-hours trading.

The company reported revenue of $94.93 billion for the quarter ended Sept. 28, up 6.1% year-over-year and topping analysts' estimates of $94.58 billion. Net income was $14.74 billion, compared to $22.96 billion in the same period last year. Excluding a $10.25 billion settlement payment in Europe during the quarter, net income was $24.98 billion, up 8.8% from $22.96 billion a year ago. Adjusted earnings per share came in at $1.64, beating analysts' expectations of $1.60.

While Apple's Q4 results exceeded investors' expectations, the company's stock price declined about 2% in after-hours trading. Shares closed at $225.91 on Thursday, down 1.82%. This decline was attributed to the significant drop in net profit during the quarter due to a large settlement payment Apple made in Europe.

For the full fiscal year, Apple's revenue was $391.04 billion, up 2.0% from $383.29 billion last year. Net income for the year was $93.74 billion and adjusted net income was $103.98 billion, compared to $96.99 billion a year ago. The company currently has a cash reserve of $156.65 billion.

Key Takeaways From Apple's Fiscal Q4 Earnings:

• Revenue: $94.93 billion, up 6.1% from $89.50 billion a year ago.

• Net income: $14.74 billion, compared to $22.96 billion a year ago; excluding a $10.25 billion settlement payment in Europe during the quarter, net income was $24.98 billion.

• Adjusted earnings per share: $1.64, up 12.3% from $1.46 a year ago.

• Product revenue: $69.96 billion, up from $67.18 billion a year ago.

• Services revenue: $24.97 billion, up from $22.31 billion a year ago.

• Operating income: $29.60 billion, compared to $26.97 billion a year ago. Gross margin was 46.2%, exceeding analysts' consensus estimate of 46.0%.

• Total operating expenses: $14.29 billion, compared to $13.46 billion a year ago. Research and development expenses were $7.77 billion, compared to $7.31 billion a year ago.

By Business:

• iPhone revenue: $46.22 billion, up 5.5% from $43.81 billion a year ago, versus analysts' average estimate of $45.47 billion.

• Mac revenue: $7.74 billion, up 1.7% from $7.61 billion a year ago, versus analysts' average estimate of $7.82 billion.

• iPad revenue: $6.95 billion, up 7.9% from $6.44 billion a year ago, versus analysts' average estimate of $7.09 billion.

• Other products (Wearables, Home, and Accessories) revenue: $9.04 billion, down 3.0% from $9.32 billion a year ago, versus an analysts' average estimate of $9.21 billion.

• Services revenue: $24.97 billion, up 11.9% from $22.31 billion a year ago, versus an analysts' average estimate of $25.28 billion.

By Geographic Segment:

• Americas revenue: $41.66 billion, compared to $40.12 billion a year ago.

• Europe revenue: $24.92 billion, compared to $22.46 billion a year ago.

• Greater China revenue: $15.03 billion, compared to $15.08 billion a year ago.

• Japan revenue: $5.93 billion, compared to $5.51 billion a year ago.

• Rest of Asia Pacific revenue: $7.38 billion, compared to $6.33 billion a year ago.

Executive Comments:

Apple CEO Tim Cook said: "Today, Apple delivered record quarterly revenue of $94.9 billion, up 6% from last year." "This quarter, we were thrilled to introduce our best products yet, including the all-new iPhone 16 lineup, the tenth generation Apple Watch, and AirPods 4, alongside new products that deliver breakthrough capabilities for hearing health and sleep apnea detection. This week, we also released the first features of Apple Intelligence, setting a new standard for privacy-preserving artificial intelligence, and setting the stage for our holiday product lineup."

Apple CFO Luca Maestri said: "Our record fourth-quarter results delivered nearly $27 billion in operating cash flow, enabling us to return over $29 billion to shareholders." "We are very pleased to see all-time highs in active installed devices across all products and all geographies, driven by extremely high customer satisfaction and loyalty."

Earnings Analysis:

Apple's AI-enhanced iPhone launch in the fourth quarter got off to a good start, driving revenue above investor expectations. However, the company's conservative guidance for future revenue has raised questions about the product's sustainability. Additionally, some analysts and investors were concerned about the decline in revenue from Greater China in the fourth quarter.

Despite the Q4 revenue and profit beats, Apple's stock price fell about 2% in after-hours trading. Apple CFO Maestri said on the earnings call: "We expect revenue growth in the first quarter to be in the low double-digit to mid-single-digit percentage range year-over-year." Analysts were previously expecting Apple's first-quarter revenue to grow 6.65% year-over-year to $127.53 billion.

iPhone sales helped to stabilize Apple's fiscal fourth-quarter performance in China, as Greater China revenue declined less than 1% year-over-year to $15.03 billion. However, analysts had expected revenue in Greater China to reach $15.78 billion, according to data. Investors are closely watching Apple's performance in China, its third-largest market after the Americas and Europe. Apple also faces competition from local handset makers such as Huawei. Maxim Group analyst Tom Forte attributed the decline in Apple's stock price to the weaker-than-expected revenue from China.

Apple said its fourth-quarter revenue was $94.93 billion, exceeding analysts' estimates of $94.58 billion. Excluding the large one-time tax settlement in Europe, Apple's earnings per share were $1.64, compared to analysts' estimates of $1.60.

iPhone revenue grew 5.5% to $46.22 billion in the fourth quarter, exceeding analysts' estimates of $45.47 billion. The rest of the product lines missed analysts' expectations. Apple's fourth quarter ended on Sept. 28, so it only reflected a few days of sales of the iPhone 16 lineup, which launched on Sept. 20. However, Apple CEO Cook said iPhone 16 sales are growing faster than iPhone 15 sales.

Cook also said that Apple users are downloading the new operating system with Apple Intelligence at twice the pace of last year. "We're already seeing great feedback from users and developers," he said. "We're off to a good."

How Apple progresses with its AI strategy this year hinges on sales of the new phones. Instead of releasing a stand-alone AI app or service, Apple has integrated new capabilities called Apple Intelligence into its latest operating system, including features that can rewrite emails in a more professional tone. These capabilities mainly run on iPhone 16 models equipped with more powerful computing chips, though iPhone 15 Pro models are also compatible with Apple Intelligence.

While Apple released some Apple Intelligence features this week, the delayed rollout of other features has left some analysts wondering if consumers will upgrade devices at a slower pace this year as Apple chooses to roll out its flagship software features gradually.

Apple's rivals Microsoft and Meta both said this week that they expect to continue increasing spending to support their AI strategies. Apple said its spending on equipment and facilities rose $2.91 billion sequentially to $9.45 billion. One reason Apple spent less than its rivals was that it is using third-party data centers to do some of its AI work.

Some of Apple Intelligence's features do rely on Apple's own data centers, and the company is using its in-house chips