Apple Earnings: What Happened

AAPL services revenue was higher than analyst predictions

Key Takeaways

  • Adjusted EPS was $1.68 vs. the $1.37 analysts expected.
  • Revenue substantially exceeded analyst predictions.
  • Services revenue was higher than consensus estimates.
  • Apple reported all-time revenue records in each of its geographic segments, driven by double-digit growth in each of its product categories.

What Happened

Apple shattered analyst expectations across adjusted EPS, total revenue, and services revenue for Q1 FY 2021. The company's services revenue of $15.8 billion marked a 24.0% increase YOY and was ahead of the $14.9 billion analysts predicted. Adjusted EPS climbed by 34.4% YOY to $1.68, and Apple reported all-time record revenue of $111.4 billion. The company attributed this performance to double-digit growth across each of its product categories and all-time revenue records in each geographic segment.

(Below is Investopedia's original earnings preview, published January 25th, 2021.)

What To Look For

Apple Inc. (AAPL) has seemed impervious to bad news over the past year. The company's stock has more than doubled since its annual low in early 2020 as demand for Apple products and services has risen with more people working at home amid the COVID-19 pandemic. The stock even has advanced in recent months despite a major antitrust lawsuit filed by the U.S. Justice Department against Alphabet Inc. (GOOGL) that directly threatens Apple's lucrative partnership with its fellow tech giant.

Investors will watch closely whether Apple can keep up its performance when it reports earnings on January 27, 2021 for Q1 FY 2021. Analysts predict that Apple will report increases in both adjusted earnings per share (EPS) and revenue, with adjusted EPS rising at a slower pace than Q1 FY 2020 and revenue at a slightly faster pace. Apple's latest fiscal year ended in September 2020.

Investors will also look at another key metric, Apple's services revenue, which is a key part of Apple's strategy of diversifying its revenue mix. Analysts expect services revenue, which has rich profit margins, to post its strongest growth in five quarters.

Apple's strong services revenue performance has contributed to the stock's success relative to the broader market, even though the stock posted a steep decline last March and moved largely sideways between early September and December. For the past 12 months, though, Apple's shares have provided a total return of 76.6%, about 5 times the 15.7% total return of the S&P 500 over the same period. All figures are as of January 24, 2021.

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

Apple's revenue has climbed year-over-year (YOY) for 14 out of the last 16 quarters, with Q1 and Q2 FY 2019 the only periods with a YOY decline. Still, revenue gains for many recent quarters have been anemic: revenue climbed by less than 2% YOY in 4 of the 6 most recent quarters. For Q1 FY 2021, analysts expect that to change. They see a robust YOY increase of 11.1%, the highest quarterly revenue improvement since Q4 FY 2018.

The company's adjusted earnings have been similarly mixed in recent quarters. After three quarters with YOY gains of more than 30% in FY 2018, Apple's adjusted EPS growth has been erratic in the most recent 8 quarters. Three of those 8 quarters have seen YOY declines, including Q4 FY 2020. For Q1 FY 2021, analysts estimate adjusted EPS growth of 9.9%. That's a significant improvement on a sequential basis but a far slower pace than the 19.3% increase in in the same quarter a year earlier.

Apple Key Metrics
  Q1 FY 2021 (Estimate)  Q1 FY 2020  Q1 FY 2019
Adjusted Earnings Per Share ($) 1.37 1.25 1.05
Revenue ($B) 102.0 91.8 84.3
Services Revenue ($B) 14.9 12.7 10.9

Source: Visible Alpha

As mentioned, a major focus for investors this quarter may be on Apple's services revenue. The company has been pivoting towards services as sales of hardware devices, including the flagship iPhone, have slowed. Apple's services include streaming services such as movie and TV entertainment provider Apple TV+, video game seller Apple Arcade, news services, and digital content stores including the iTunes Store and the App Store, as well as Apple Pay, and AppleCare. It also includes a variety of other services that support Apple's hardware devices. Revenue from Apple's services business tends to be more stable and predictable than its product revenue, and services also have dramatically higher margins.

Analysts expect Apple's services revenue to increase to $14.9 billion in Q1 FY 2021, its highest level in at least four years. The company's services revenue has grown significantly in recent years, ranging from a low quarterly growth rate of 12.6% to a high of 40.0% between fiscal years 2018 and 2020. Service sales now account for more than 22% of Apple's total revenue as of Q4 FY 2020. For Q1 FY 2021, analysts estimate revenue will rise a healthy 17.3% YOY, and increase 15.6% for all of FY 2021.

Article Sources
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  1. Apple Inc. "Apple Reports First Quarter Results."

  2. Apple Inc. "Condensed Consolidated Statements of Operations," Page 1.

  3. New York Times. "Apple, Google and a Deal That Controls the Internet."

  4. Apple Inc. "FY 21 First Quarter Results."

  5. Visible Alpha. "Financial Data."

  6. CNBC. "Apple's $2 trillion value is proof that Tim Cook's services plan worked."

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