On Thursday, Apple announced its fiscal fourth quarter results, and the results were predictable – another record quarter. But of course, Wall Street had already anticipated all of this and decided that much of Apple’s growth was not as strong as they had expected. It happens.
Still, from the broader perspective of viewing Apple’s financial information as indicators of how Apple is doing as a company, there was some interesting information among the piles of cash and the laments of financial analysts. looking for endless growth. There always are.
The slowness of services
Apple likes all of its legally required revenue disclosure lines, of course, but the ones that allow it to show growth on Wall Street are more equal than the others. So has services, which have been on an upward path for seemingly ages.
But services have hit a snag, total revenue for the category (which covers Apple TV+, Apple Music, etc., but also the App Store and AppleCare) has actually declined sequentially over the past two quarters. More shocking, perhaps, is the 5% year-over-year growth in a category that is almost always in double digits. This is the category’s lowest year-over-year growth figure in the decade we’ve tracked services revenue.
It may not be good for Apple’s growth engine to stall, but the company says there’s no reason to get upset as the services sector is particularly affected by the strength of the US dollar. This makes sense when you think about it: Apple sets prices for services in local currencies and doesn’t change them when exchange rates change. So when Apple TV+ debuted in the UK, it cost £4.99, or $6.41 per month. Today, that would only be worth $5.73 a month back home. This is repeated in nearly every territory Apple does business in, and it weighs on the Services business more than any other.
“We achieved double-digit growth in constant currency in Services on top of 26% growth in the September quarter a year ago,” Apple Chief Financial Officer Luca Maestri said Thursday. Yes, that’s right – if all the currencies were pegged together and no longer floated, Apple’s year-over-year growth in services would have been at least double what it was.
However, there is were weak points, said Maestri. Revenue from games in the App Store is apparently down, which appears to be a side effect of people going out more than staying home during the early stages of the pandemic. And digital advertising was also sweet.
Ironically, in a week where Apple has been widely criticized for littering the App Store pages with advertisements for gambling apps, CEO Tim Cook’s only statement about the company’s advertising activities was to minimize them. “Our specific advertising business is not large compared to others,” he said. “We don’t release the exact numbers on that, but it’s clearly not important.” Is it a threat or a promise?
The return of the Mac
I was about to start my time at Macworld when Steve Jobs came back and made a deal with Microsoft and started the Think Different campaign and managed to get this job done not the Bad Career Move was beginning to appear in the depths of 1997.
Look at the Mac now. I just want to stop and admire, once again, the fact that this 36-year-old computing platform has once again had its best quarter ever. Apple sold $11.5 billion worth of Mac hardware in the fourth fiscal quarter, breaking the old record of $600 million. Revenue increased 25% over the prior year quarter.
That’s pretty awesome, but there’s a catch: The quarter was so good in part because last quarter (7.4 billion sales, weakest Mac quarter in over two years, down 10% over the prior year quarter) was so bad. Here’s what happened: COVID shutdowns in Shanghai prevented Apple from assembling Macs for a month or two, and that meant last quarter the company was unable to meet the request. (If you tried to buy a Mac Studio this spring, you might remember your eyes widening during the wait times.)
This neighborhood was where the Macs set up all the family business. According to Cook and Maestri, Apple was able to satisfy all of the pent-up demand from the previous quarter, fill the channel for the current quarter and meet increased demand with the launch of the new version of its most popular Mac, the M2. Macbook Air.
So it was a very good quarter for the Mac. The best, in fact! But let’s also remember that it’s partly because the last quarter was so bad.
Recording of Scrooge McDuck
When I first started writing these Apple earnings articles many years ago, I used to joke about how much money Apple had on hand, because the number just kept on grow. We’re talking billions of dollars sitting around because the company was making money so fast it just couldn’t spend it all.
That joke faded when Apple declared its goal of reaching a cash-neutral position in the future and began buying back stock more aggressively and paying dividends to shareholders. And indeed, Maestri said on Thursday that the company repurchased $550 billion in stock. In that quarter alone, it paid out $3.7 billion in dividends and spent $25.2 billion on open-market share buybacks.
And yet Apple parting with its money seems like a Sisyphean task. As Maestri admitted today, during the quarter Apple made free cash flow of $111 billion, and net cash was still $49 billion at the end of the day. That’s actually progress, because at its peak, Apple’s cash flow exceeded $100 billion.
“We continue to make progress towards our goal of becoming net cash neutral over time,” Maestri said. It was the sound of a man who just can’t spend the money fast enough – Luca’s billions, let’s call it. Cook pointed out that Apple is buying companies at the rate of one acquisition per month, so at least they’re offloading some of that money to intellectual property, talent, or “preferably both,” as Cook put it. .
Still, $49 billion in cash. Apple might buy Nintendo for that. (Not that it will.)
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