Apple’s stock surges on solid earnings and $110bn share buyback plan

Apple reported better-than-expected earnings for the second quarter of the fiscal year 2024, which propelled its share price up by over 6% in extended trading hours to nearly $184. The iPhone maker has also announced the largest share buyback program of $110 billion, further fuelling the tech giant’s stock rally.

Apple’s earnings top Wall Street’s expectations

Apple reported a net income of $23.64 billion, which is down 2% from a year ago. Meantime, the earnings per share stood at $1.53 on net sales of $90.75 billion, surpassing the estimated $1.50 and $90.01 respectively. The fastest-growing segment, Service revenue, reached $23.9 billion, significantly exceeding the estimated $23.27 billion. The company anticipates that overall sales will return to low single-digit growth, with its Services sales maintaining a stable pace of double-digit growth in the current quarter.

Nevertheless, the overall revenue decreased by 4% from a year ago, attributed to a 10% year-on-year drop in iPhone sales. The 13% decline in sales in China had a significant impact on its product revenue. However, CEO Tim Cook indicates a potential recovery in mainland China sales during the current quarter, following his visit to the country in March. 

In other products, Apple surpassed market expectations in Mac sales with revenue of $7.5 billion, marking a 4% increase from a year ago, compared to the estimated $6.86 billion. However, iPad revenue was recorded at $5.6 billion, falling short of the expected $5.9 billion, down 17% from the same quarter in 2023. During the earnings call conference, CFO Luca Maestri mentioned that iPad sales may rebound to double-digit growth with the release of new products.

Apple Services gain momentum

A notable trend is the diminishing reliance on iPhone sales within Apple’s business model, with its revenue now representing only 50% of the total revenue, compared to 58% in the final quarter of 2023. Conversely, services sales have gained prominence, accounting for 25% of net sales, up from 20% in the same period.

Apple Services, encompassing Apple Store, Apple Pay, Apple TV+, Apple Music, Apple Arcade, and iCloud, has emerged as a standout performer for the company. It is the most profitable segment, with revenue experiencing accelerated growth, up by 14% year-over-year. Its gross margin reached 75% in the March quarter, an increase from 73% in the previous quarter. Meanwhile, the gross margin for Product sales, including

iPhone, iPad, Mac, and other products, stood at 37%. These figures collectively propelled Apple’s overall gross margin to a record level of 47%.

Apple expresses a positive outlook on AI development

Unlike other tech giants such as Microsoft, Alphabet, and Meta Platforms, Apple has maintained a relatively low profile regarding its advancements in AI, which has pressured the company’s share price. Despite a 6% surge in its share price, Apple continues to underperform compared to its tech counterparts, with a stagnant year-to-date movement.

However, Apple has a dominant eco-system with huge potential in AI development. When questioned about Apple’s AI strategy, CEO Tim Cook stated, “We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era, including Apple’s unique combination of seamless hardware, software, and services integration; groundbreaking Apple silicon with our industry-leading neural engine, and our unwavering focus on privacy.” 

Cook hinted that he would elaborate further on the AI strategy in the upcoming weeks, potentially aligning with the Apple Worldwide Developers Conference on 10th June.

Previously, Apple had engaged in discussions with OpenAI and Google about potential deals to integrate chatbots into its iOS 18. However, as of now, there has been no firm confirmation of either agreement.