Apple had a strong fiscal fourth quarter, boosted by iPhone sales, but the stock was still down.
Apple (NASDAQ:AAPL) reported record revenue for the September quarter after rolling out several new products, including the iPhone 16, but investors were not all that impressed.
Apple stock was down about 2% at the opening bell Friday after reporting its fiscal Q4 earnings. It clawed back a bit in the morning session, but was still off about 1.5%, trading at just under $222 per share.
The world’s second largest company by market cap saw a 6% boost in revenue in the quarter to $94.9 billion – a record for the September quarter. That bested estimates of $94.6 billion,
Net income plummeted 36% to $14.7 billion, or 97 cents per share, but that was skewed by a one-time charge to resolve a tax issue in Europe.
More representative of its performance is operating income, which rose 10% year-over-year to $29.6 billion. Also, adjusted net income was about $25 billion, or $1.64 per share, which was better than estimates of $1.60 per share.
So why was the stock trending lower?
iPhone 16 sales provide a lift
Apple made a big splash in September when it released the long-awaited iPhone 16, with a new iOS 18 operating system, along with new versions of the Apple Watch, AirPods, and other new products.
While the rollout came late in the quarter, it had an impact on iPhone sales, which generated $46.2 billion in revenue, a 6% year-over-year increase and a September quarter record. The iPhone sales topped estimates of $5.5 billion.
“During the quarter, we were excited to announce our best products yet, with the all-new iPhone 16 lineup, Apple Watch Series 10, AirPods 4, and remarkable features for hearing health and sleep apnea detection,” CEO Tim Cook said.
In an interview with CNBC, Cook said that iPhone 15 sales were stronger than iPhone 14 sales in the same quarter a year ago, and iPhone 16 sales were stronger than 15.
The growth in iPhone sales stops a negative trend, as Apple had seen slower year-over-year growth in its Q3. And over the past year through Q3, iPhone sales had been down about 10%.
Overall, revenue in its products division, which includes the iPhone, Mac computers, Apple Watches, iPads, and others, was $70 billion, up 4% year-over-year. Mac revenue was up 2% but short of estimates, while iPad revenue missed estimates. Also, Wearables revenue was off 3% and missed estimates.
Within the Services division, which includes Apple TV, Apple Music, apps, Apple Pay and other services, revenue jumped 12% to $25 billion and set and all-time record – although it fell slightly short of estimates.
“We saw broad-based strength around the world, reaching all-time records in both developed and emerging markets with double-digit growth and record results across most services categories,” CFO Luca Maestri said on the earnings call.
Apple Intelligence and outlook
Trying to pinpoint why investors were selling off Apple stock is not easy, but it may have had something to do with slightly negative sales in China, to $15.0 billion from $15.1 billion. However, that is actually an improvement in China compared to past quarters.
“As you know, it’s been a headwind that we’ve been reporting for a period of time. But … what else is going on there is that our installed base of active devices reached an all-time high,” Cook said. “We had the top two selling smartphones in urban China according to Kantar … So, there’s several positive signs there.”
The big news for this quarter, its fiscal Q1 2025, is the rollout of Apple Intelligence on its newer iPhones, Macs, and iPads with the launch of iOS 18.1.
“This week, we released our first set of features for Apple Intelligence, which sets a new standard for privacy in AI and supercharges our lineup heading into the holiday season,” Cook said in the earnings release.
While it has only been out for a few days, Cook said the adoption rate for iOS 18.1 is twice as fast as the 17.1 adoption was in the same quarter a year ago. And more features will come out in December.
“So, there’s definitely interest out there for Apple Intelligence,” Cook said.
That said, the company is targeting low to mid-single digits total revenue growth in the December quarter with services revenue growing at a double-digit rate, similar to recent quarters.
Is Apple stock a buy?
Apple did not get a lot of price target upgrades after releasing earnings, and its median price target is $250 per share, about 11% higher than the current price.
Low-to-mid-single digit revenue growth projections don’t move the needle that much, considering it is the holiday quarter, and the valuation is still relatively high, as Apple stock is trading at 37 times earnings.
I think the valuation is still a bit too high relative to earnings. Apple is certainly a hold, but there may be other better options among big tech growth names.
