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Apple (NASDAQ: AAPL) did it again.
The technology giant reported another monster quarter on Monday. It easily beat analyst expectations on both revenue and earnings, thanks to strong performance of Apple’s flagship product, the iPhone. Furthermore, the company realized very good results across its ecosystem, beyond just phones. CEO Tim Cook also credited the App Store and the Mac for the big earnings beat.
In addition, Apple gave a preliminary look at what the future holds, as investors eagerly awaited any news on the success of the Apple Watch. Last but not least, we learned of a new, massive capital allocation program, including an Apple dividend increase of 11%.
Clearly, there was a lot of information to digest. Here is a breakdown of the major takeaways from Apple’s earnings.
Apple earned $2.33 per share in the fiscal 2015 second quarter, far above expectations of $2.16 per share. It grew earnings per share by 40% year-over-year. Revenue clocked in at $58 billion, up 27% versus the same period one year ago.
The company sold an amazing 61.1 million iPhones last quarter. Not surprisingly, China was a major reason for this.
Apple’s devices have only been available to China Mobile (NYSE: CHL) customers for about a year. Apple’s breakthrough partnership with China Mobile was a watershed moment that has unlocked hundreds of millions of new customers for the technology giant. Indeed, China Mobile is the largest wireless telecommunications carrier in the world, with more than 800 million customers.
Revenue in Greater China, which includes Hong Kong and Taiwan, soared 71% last quarter. This represented the largest year-over-year growth of any of Apple’s operating segments. By comparison, revenue in the Americas rose “only” 19%.
Clearly, China was a major factor for Apple’s stunning performance.
Another factor was favorable pricing. Apple not only sold more of its devices, but it also realized higher average prices. The average price of the iPhone hit $659 last quarter, which beat analyst estimates of $654 per phone. This was up $62 per phone year-over-year.
Going forward, investors have their attention tuned to the Apple Watch, which arguably represents the company’s biggest growth opportunity in years. That’s because the Apple Watch represents an entirely new product category for Apple.
Of course, the Apple Watch is still barely in its infancy. The product only became available last week, and the company stated that 22% of orders had shipped. On the ensuing conference call with analysts, Cook called the Apple Watch’s early performance “overwhelmingly positive,” and said that demand was actually outpacing supply. These are encouraging words, but the current quarter will be a critical test for the Apple Watch.
Lastly, Apple announced a major change to its capital allocation program. The company will expand its capital returns to $200 billion, from a previous $130 billion authorization. This will be comprised of $140 billion of share repurchases, up from $90 bilion. Separately, Apple increased its dividend by 11%, to $0.52 per share quarterly.
The reason why Apple can afford such a massive capital return program is because it has a mountain of cash on its balance sheet. Cash, cash equivalents and marketable investments grew even higher in the second fiscal quarter, to a record $193.5 billion. At the end of its first fiscal quarter, the cash figure clocked in at $178 billion.
To be sure, not everything in Apple’s earnings report was positive. The company noted another decline in iPad shipments and sales. Revenue from the iPad declined 29% year-over-year, due to a 23% decline in device sales.
Once again, the iPad lost ground. This is undeniably due to Apple’s decision to significantly increase the screen size of the iPhone 6 Plus, which is a “phablet” that looks and feels like a blend of a phone and a tablet. As a result, many consumers likely feel less of a need to buy both an iPhone and an iPad, and instead get by with just a phone.
This means Apple is now more reliant on the iPhone than ever before. Approximately 69% of its total revenue last quarter was derived from just the iPhone. Such a high concentration in a single product should be a concern for investors.
Apple stock rose slightly more than 1% in after-hours trading after the release of its earnings. To me, this signifies that while the market was pleased with the results, it wasn’t the overwhelmingly positive reaction that Apple had enjoyed in previous quarters.
First Apple, now this…
On Friday, April 24th, the Apple Watch finally became available. And if history is any guide, it’s going to catapult Apple even higher—as did the iPod, iPhone and iPad before it. Now, Apple would prefer you didn’t know this…but there’s another company that’s destined to soar even higher because of the Apple Watch. Apple has long tried to keep it a secret. But you can discover it right here.