A 10% drop in iPhone sales seems like a problem for the US. appleconsidering the company relies on devices for half of its revenue.
But investors didn’t seem concerned when Apple revealed a year-over-year decline in its second-quarter earnings report on Thursday. The stock is up more than 6% after the market close, which would be the biggest gain since November 2022 if regular trading continues on Friday.
Wall Street chose to focus less on iPhone profits and more on the positives. Apple’s gross profit margin continued its upward trajectory, expanding to 46.6%, reflecting the growth of the company’s services business, which delivered solid profits.
Apple also indicated that overall sales growth will be in the low single digits this quarter, following a 4% decline in the second quarter. Analysts had expected growth of 1.3% in the third quarter, according to LSEG.
Deepwater Asset Management’s Gene Munster said the guidance was a “relief” given the recent trajectory of business.
“I was expecting it to be flat. Some investors were saying it would be down a few percentage points in June,” Munster told CNBC’s “Fast Money” after the report. “I think that was a big part of us making it to the top this time.”
But perhaps the biggest catalyst for Pop was Apple’s announcement that it had approved a $110 billion stock buyback, the largest ever for a publicly traded company. Over the past three years, Apple has authorized $90 billion in annual stock buybacks.
The after-hours rally shows how investors value Apple’s large cash flow and the company’s willingness to return more of it to shareholders. This marks a long-overdue shift in Wall Street’s view of Apple, from a hit-driven gadget business to a financial powerhouse.
“Our free cash flow generation has been very strong over the years, especially in the last few years,” Apple CFO Luca Maestri said on an earnings call.
Apple revealed earlier this year that it has 2.2 billion active devices, and as the company rolls out new subscription services, it’s expanding its customer base to huge reach. Showing. Despite a 4% decline in sales, Apple still posted nearly $24 billion in profit, down just over 2% from the same period last year.
Apple said iPhone sales struggled compared to last year, when sales increased after a previous shortage. Still, investors are focused on the iPhone’s future growth, and many analysts believe the potential of an iPhone with AI capabilities could work well and help the company win over customers from Android. It states that there is. iPhone annual revenue peaked in Apple’s fiscal year 2022.
While Apple provided some guidance on total revenue, it declined to provide any kind of forecast for iPhone sales.
It’s also a change for companies that haven’t provided much forward guidance since the pandemic. Maestri typically provides iPhone sales trends and also provides trends for the past four quarters.
There is no guarantee that investors can continue to expect increased share buybacks from a company that is more active than any other company in its sector. Apple said it is trying to unwind its massive cash reserves, which totaled $162 billion at the end of this quarter. Apple will consider what to do next if its debt roughly equals its cash balance, meaning the company is net cash neutral, executives said Thursday.
As of the end of 2023, Apple has spent $658 billion on stock buybacks over the past 10 years, far ahead of second-place Microsoft. S&P Dow Jones Indices.
“In the last few years, we were doing $90 billion in revenue, and now we’re doing $110 billion in revenue,” Maestri said on a phone call.
As for what would happen if Apple became net cash neutral, Maestri said, “Let’s get there first. It’s going to take some time.”
“And once we get there, we’re going to re-evaluate and see what the optimal capital structure is for the company at that time.”
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