Apple beat Q4 sales and profit targets as a wearables surge overshadowed the ongoing iPhone funk

Justin Sullivan/Getty ImagesTim Cook, CEO of Apple.
  • Apple posted revenue of $US64 billion for its fiscal fourth quarter, beating analysts expectations.
  • The company also beat expectations on revenue per share, earning $US3.03 a share versus expectations of $US2.84.
  • iPhone revenue fell again, but the company’s wearables and services businesses have continued to grow.
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Apple topped Wall Street’s financial targets in its fiscal fourth quarter, as an expanding catalogue of wearable gadgets and online services helped offset declines in the company’s flagship iPhone business.

The company’s wearables business unit which includes products like the Apple Watch and the wireless AirPods ear buds as well as unspecified “accessories,” is now nearly as big as Apple’s Mac business, the company revealed on Wednesday.

Altogether, Apple’s revenue grew nearly 2% year-over-year to $US64 billion during the quarter, exceeding analyst expectations by $US1 billion.

The stronger-than-expected results sent Apple’s stock up as much as 3% in after-hours trading on Wednesday.

Apple CEO Tim Cook said that the newly released iPhone 11 has become the company’s best selling iPhone since its September launch.

“It’s early but the trend look very good,” Cook said on a conference call, describing the company as “bullish” about the potential to rejuvenate the iPhone business, which began to shrink at the end of 2018.

Cook’s comments on the iPhone 11 and Apple’s revenue forecast cheered investors by suggesting a strong upcoming holiday sales season for the current quarter, typically Apple’s biggest quarter of the year.

Apple Revenue By Product Fiscal Q4 2019Business Insider Intelligence

The key numbers

Here’s a look at the key numbers and how they compare against analysts’ expectations and the company’s performance same quarter one year ago.

  • Q4 revenue: $US64 billion. Analysts were looking for $US63 billion. In the same period a year ago, the company posted revenue of $US62.9 billion.
  • Q4 earnings per share: $US3.03. Wall Street was expecting $US2.84. In its fourth quarter last year, Apple earned $US2.91 a share.
  • Q1 revenue (guidance): $US85.5 billion to $US89.5 billion. Analysts were expecting $US86.51 billion. Apple saw sales of $US84.3 billion in the first quarter of 2019.
  • Q1 earnings per share: Apple didn’t provide a per-share earnings forecast, but the guidance it did provide implies it expects a first-quarter per-share profit of between $US4.15 a share and $US4.63 a share, assuming its share count remains about the same. The midpoint of that range is $US4.39 a share, which is slightly below analysts’ estimates of $US4.42 a share.

The smallest iPhone decline since 2018

While the iPhone 11 is off to a strong start, the brunt of iPhone sales in the quarter, which ended on September 28, were based on Apple’s older line-up of phones. And Apple’s iPhone revenue fell again in the fourth quarter of 2019, dropping by 9% year-over-year to $US33.36 billion. Still, it was the first time that the year-on-year rate of decline has narrowed into single digits since since the end of 2018, when the iPhone business first began to shrink.

As the smartphone market has become saturated and various companies have grappled with declining sales, Apple has increased its focus on growing other product areas, particularly services. Over the past several months, Apple has expanded into new categories by launching subscription programs for gaming and premium television, as well as its own credit card called the Apple Card.

The services division grew to $US12.5 billion, an increase from $US10.5 billion in the same quarter last year, and now accounts for roughly 20% of Apple’s total revenue. Tim Cook said the company is on track to meet its goal next year of doubling the 2016 services revenue.

Apple Services YoY Revenue Growth Fiscal Q4 2019Business Insider Intelligence

Wearables are growing faster than any other Apple business

Apple’s Wearables, Home, and Accessories business grew more than 50% year-over-year to $US6.5 billion.

The group accounts for more revenue than Apple’s iPad business, and is closing in on the Mac division, which earned the company $US6.9 billion in revenue during the fiscal fourth quarter. Earlier this year, CEO Tim Cook said the wearables division alone is as big as a Fortune 200 company.

Cook declined to break out specific details about the performance of the various products within the wearables group, such as the Apple Watch and the AirPods.

But he noted that three out of four consumers who buy an Apple Watch are doing so for the first time, suggesting that the business is still expanding with new users rather than simply benefiting from die-hard Apple fans upgrading their devices.

“We’re still significantly in the build mode,” Cook said of the Watch business. “We dont’ think of the penetration as anywhere near a mature penetration.”

Many of Apple’s services, however, are driven by the iPhone – and as such the iPhone remains an important tenant of Apple’s business. The company expects the iPhone to return to growth in 2020 following the launch of four new iPhones, including three models that support 5G and one cheaper variant, Bloomberg reported earlier on Wednesday. Analysts also believe the introduction of 5G will be drive upgrades following next year’s expected iPhone launch.

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