Whatās Going On Here?Apple ā the worldās second-largest public company ā reported better-than-expected quarterly results late on Tuesday. Investors duly Applauded, helping its stock initially rise 2%. What Does This Mean?Sales of iPhones ā including the first full quarter of the company's latest flagship product ā impressed, as did those of wearables such as the now-ubiquitous AirPods. But revenue from Appleās services segment, where Apple TV+ didnāt do much to hamper rival Netflixās quarter, surprisingly missed expectations. That bodes ill for the companyās plans to shift its focus away from hardware and towards recurring subscription sales (tweet this).
The big Appleās earnings forecast for this quarter, meanwhile, was higher than investors had thought. Still, with China representing almost 20% of Appleās overall business and a proliferating coronavirus there disrupting consumer spending, thereās perhaps a bigger risk than usual that the company falls short. Why Should I Care?For markets: At the margin.
Apple scored just 15% of global smartphone shipments last year ā but 66% of the total profit they generated. Put simply, iPhone revenue ā which has already exceeded $1 trillion ā has been the apple of Appleās earningsā eye ever since the deviceās 2007 launch. That may explain why investors are so keen on signs of success in the companyās transition to extremely profitable services sales from those of merely highly profitable phones and computers. For now, however, those signs remain elusive ā and the costs involved continue to upset the apple cart: Appleās profit margin has fallen for the last two years, and analysts reckon itāll fall further this year too.
Zooming out: All the tea in China.
Appleās not the only US company (or investor) counting on growth in China: famous āactivist investorā Bill Ackman has bet a billion dollars on Starbucks winning big there. But despite also announcing better-than-expected quarterly earnings late on Tuesday, the coffee companyās stock price initially fell. What with the coronavirus closing cafes, Starbucksā earnings this quarter, like Appleās, probably wonāt be as grande as previously predicted. | 