In one quarter, Apple (AAPL) achieved a remarkable sales figure of $81.8 billion, despite not releasing a new iPhone during that time. This was partially impacted by a 4% currency headwind resulting from increased business in countries such as Indonesia, India, the Philippines, Mexico, and Turkey. The company’s services revenue reached an impressive $21 billion, representing an 8% increase compared to the previous year. Additionally, Apple achieved a record gross margin of 44.5% for the June quarter. The highlight, however, is the installation base of 2 billion devices, which provides a significant market for future sales as each product is revamped.
Despite these strong financial results, Apple’s stock experienced a negative reaction on the market, with shares falling nearly 5% following the release of its quarterly results. Many news stories are predicting the end of Apple’s premium multiple and its $3 trillion market valuation. However, it is important to note that Apple’s stock is still up 40% for the year. Some analysts had set overly optimistic growth estimates, which contributed to the disappointment among investors. It is crucial for Apple to exceed expectations in order to satisfy investors, as the company is valued in a similar manner to the other mega-cap companies.
Prior to the announcement of the quarter, I had the opportunity to speak with Apple CEO Tim Cook. I focused on two main aspects: the services revenue and the components within it, such as Apple TV+ and the VisionPro mixed-reality headset. I have personally experienced the VisionPro and found it to be impressive. Its ease of use and versatile applications make it a valuable product for entertainment and work purposes, despite its higher price tag. I suggested the introduction of a “buy now, pay later” option to make it more accessible to consumers, although the company has not considered this yet. The services revenue itself is extraordinary, with a billion subscribers and the potential for significant growth. Apple will likely compete with Amazon and Alphabet in this space and emerge successful.
During the earnings calls with investors, however, the focus was mainly on declining hardware sales, particularly shrinking iPhone sales. This indicates that Apple may face a challenging period similar to its previous experiences, which often last until investors forget the reasons for selling their shares initially. I have advised investors to “own it, don’t trade it” when it comes to Apple because the company has frequently encountered quarters like this. Those who have a different opinion can seek advice elsewhere.
Apple’s strong customer satisfaction rates, currently at a remarkable 98%, are worth noting. This traditional verification method contrasts with metrics like net promoter scores or number of followers. It is interesting to consider the value of a customer who purchases an iPhone in terms of subscriptions and other products. However, this topic has become less significant for me personally, and I chose not to discuss it in this conversation.
In comparison, Amazon reported its earnings on the same evening. Unlike Apple, Amazon did not have any expectations to meet, and I have a complex relationship with the company due to its cloud growth. I previously made a controversial prediction about the decline in Amazon Web Services (AWS) during the previous quarter. I stated that the decline would stop at 10% despite the actual figures being worse, which created some controversy. However, I firmly believed that companies should continue investing in AWS despite concerns about a slowdown or recession. I predicted that AWS would stabilize and even experience growth, as companies increasingly rely on artificial intelligence. It turns out that AWS did stabilize above my projected number. Additionally, Amazon’s regionalization strategy and improved delivery capabilities have boosted its growth potential. Amazon is one of the few companies that have benefited from the changes in consumer behavior caused by the pandemic.
Despite some concerns about iPhone sales and the need for extensive marketing efforts for the Vision Pro, I remain optimistic about Apple. The company’s high customer satisfaction rates will likely drive iPhone 15 sales. Apple has the potential to dominate the consumer financial market, as it only requires the front end where sales occur while other companies handle the backend operations. I believe that Apple’s customer satisfaction is a more significant factor than lagging iPhone sales. As for Amazon, I am eagerly awaiting updates on the company’s performance.