Apple’s Q1 2015 – Record Breaking, Estimate Crushing Quarter

Apple’s Q1 2015 – Record Breaking, Estimate Crushing Quarter

On Tuesday, January 27, 2015, Apple released its 2015 first quarter earnings report. This quarter crushed a couple of records and was truly a historic quarter for Apple. Apple’s net income for the quarter was $18 billion, up 37% year-over-year. Not only is this figure the greatest profit Apple has ever earned in a quarter, but it is also the most profit ever earned by any company in history. To put this into perspective, last quarter Apple earned $8.3 million per hour in profit, 24 hours per day. Similarly, earnings per share crushed expectations-$3.06 vs. $2.60 expected. Apple ended the quarter with $178 billion in cash. In other terms, Apple could buy Ford, GM, and Tesla and still have $41.3 billion left over. Finally, despite strong negative headwinds from fluctuating foreign currencies, Apple has provided strong guidance for the March quarter as they feel, “very, very confident in the pipeline of products and services.”

Apple Pay

One of the newest services offered by Apple is Apple Pay and Tim proudly shared some figures on how this business is doing. Currently Apple Pay has grown to over 750 banks and credit unions and just three months after launch, Apple Pay transactions account for two out of every three dollars spent via contactless payments. For some merchants this figure is much higher. Panera states that 80% of their contactless payments are made through Apple Pay. When Tim was pressed about future expansion of the service, Tim said that Apple “hasn’t even completed the first inning of Apple Pay.” Not only did Tim mention plans to expand Apple Pay geographically, but he also hinted at some future innovations possibly including C2C payment going after rival, Venmo.

iPhone

Apple has never been as dependent on iPhone revenue as this past quarter. For better or worse, the iPhone now makes up 69% of Apple’s total revenue and iPhone is mainly what drove this record breaking quarter. In Q1 2015, Apple sold 74.4 million iPhone, equating to more than 34,000 iPhones per hour! This represents a colossal 46% growth year-over-year and was Apple’s strongest iPhone units quarter by over 23 million units. This growth was partly fueled by sales in foreign countries. China, Brazil, and Singapore saw double the amount of iPhone sales this quarter compared to the previous. Although Tim wouldn’t reveal the mix of iPhone 6, iPhone 6 Plus, iPhone 5S, and iPhone 5C, he said that the iPhone 6 by far held the largest percentage of sales, though there was some clear geographic preferences to the 6 Plus in certain regions. This quarter also saw the highest number of customers new to iPhone, as well as the highest Android switcher rate compared to the previous 3 launches. Apple also sold their one billionth iOS device this quarter.

Mac

Both App Store and Mac set records for quarterly revenue. Apple sold 5.52 billion Macs this past quarter resulting in $6.9 billion in revenue. Tim was proud to share that Mac sales were up despite a declining PC market as the Mac has gained market share 34 out of the last 35 quarters.

iPad

Despite tremendous growth in Apple’s other segments, iPad remains a small dark cloud for the company. Analysts expected 22 million iPads to be sold and Apple fell short, selling 21.4 million resulting in a 17% decrease year-over-year. Tim did not have a specific explanation for this drop but believes that, “over the long arc of time, iPad is a great business. I feel very, very good about what’s in the pipeline.” Despite the disappointment in units sold, 98% of customers are satisfied with their iPad Airs and 60% of customers looking to purchase a tablet in the next 90 days, plan to purchase an iPad. Tim expressed that the iPad upgrade cycle is longer than iPhone, but shorter than Mac and told analysts that 50% of iPads sold were to customers new to iPad. This leads Tim to believe that the market is not saturated and the iPad can continue to grow in the future.

Apple Watch

The biggest news out of Apple yesterday (if you’re not a stock holder or much into finance) was the announcement that Apple will begin shipping the Apple Watch in April. Previously the company had mentioned “Early 2015” and many analysts predicted a March release. Tim has defined “Early 2015” to be the first four months of the year, “mid” to be the next four months, and “end” to be the last four months, defining for the first time with a little more specificity what Apple means by its generic product launch dates. Tim also mentioned that he is, “using [the Apple Watch] every day, loving it, and can’t live without it!”

Summary

This quarter was one for the record books. The stock was up well over 6% in after-hour trading and over 9% in pre-market trading. The challenge ahead of Apple, which was almost always one of their challenges (except for the past year or so when people believed Apple was “doomed”), is whether or not Apple can sustain this growth. Clearly, growth this tremendous is not sustainable for any company under any conditions, but can Apple continue to reach more markets and more consumers to maintain some sort of impressive profitability they are known for? Tim believes yes, only time will tell!

(Image from Business Wolf)