Key Takeaways

  • EPS of $2.55 vs the $2.37 expected.
  • Revenue: $58.3 billion
  • Dividend increased by 6%
  • $50 billion 10-year stock buyback announced

What Happened

Apple reported fiscal second quarter earnings per share of $2.55, a 4% increase from the same period a year ago on revenue of $58.3 billion. Both were higher than analysts' expectations. The company announced a 6% increase in its dividend to $0.82, as well as a $50 billion share buyback over the next ten years.

CEO Tim Cook acknowledged the company's performance despite the COVID-19 outbreak and the disruption to its operations and customers.

“Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables,” he said in the company's press release. Still, Apple did not issue financial guidance for the second quarter as the business outlook remains too uncertain.

(Below is Investopedia's original earnings preview, published 4/22/20.)

What to Look for

Shares of Apple Inc. (AAPL), one of the world's largest companies by market value, doubled in 2019, fueled by excitement over the latest iPhone models and the Apple TV+ streaming entertainment service. That optimism faded in 2020 as the coronavirus pandemic pushed down Apple shares and as the financial outlook darkened for the company. Investors will watch closely whether Apple can surmount these challenges and keep growing longterm when it reports results for Q2 FY 2020 after the market close on April 30. Apple ends its fiscal year in September. For Q2, analysts expect falling adjusted earnings per share and revenue even as its services business reports strong gains.

Investors are likely to focus heavily on a key metric: Apple's services business, which has grown quickly by offering a broad range of product-related services as well as news, streaming video games, music and streaming entertainment. Services net sales rose by 16.9% in Q1 2020 to a new record of $12.7 billion. That revenue source is becoming more important as Apple's retail stores, key drivers of revenue, remain closed for weeks due to the pandemic.  

Despite the recent declines in Apple's stock, it has still dramatically outperformed. During the past 12 months, it's posted a total return of 33.8% compared with total returns of -5.4% for the S&P 500 as Tuesday, March 21.

One Year Total Return for S&P 500 and Apple
Source: TradingView.

It's common for Apple's revenue to fluctuate significantly from quarter to quarter. In recent years, fiscal Q2 revenue has been significantly lower than fiscal Q1, which includes the annual holiday shopping period. Fiscal Q2 revenue declined 5.1% in Q2 FY 2019 and consensus estimates are for a further YOY decline of 3.3% in Q2 FY 2020 to $56.1 billion. Dipping sales in the flagship iPhone product may be a major contributor to Apple's falling revenue figures. 

Apple's adjusted EPS has shown a similar pattern. The company posted a 9.9% decline YOY in adjusted EPS in Q2 FY 2019, and analysts expect a further 3.5% decline to $2.37 in the Q2 FY 2020.

Apple Key Metrics
  Q2 2020 (estimate) Q2 2019 Q2 2018
Earnings Per Share (in dollars) 2.37 2.46 2.73
Revenue (in billions of dollars) 56.1 58.0 61.1
Services Revenue (in billions of dollars) 13.2 11.5 9.9

Source: Visible Alpha

As sales of the iPhone and other hardware devices have stagnated, Apple has moved aggressively to expand its services revenue, a strategy that other tech companies including Microsoft Corp. (MSFT) have also adopted. Apple's services include streaming services such as Apple Arcade and Apple TV+, digital content stores including the iTunes Store and the App Store, as well as Apple Pay, AppleCare, and a variety of other services. Sales from these areas constitute the company's services revenue, which is generally viewed as a more stable and predictable revenue stream than sales of hardware.

The company has made steady progress in recent years, with net sales of services rising from $7.0 billion in Q2 FY 2017 to $11.5 billion in Q2 FY 2019. Now, analysts are forecasting services will grow by 15.5% in Q2 2020 to a new record of $13.2 billion in net sales.

Despite this growth, services is still a relatively small part of Apple's total revenue. But with so many people worldwide sheltered at home, Apple's strategy may get a big boost as consumers flock to new services such as streaming video games, TV and movies.