Source: Company reports

4Q16 RESULTS

Apple reported 4Q16 revenues of $46.9 billion, down 9.0% year over year and slightly below the $47.0 billion consensus estimate. Management made positive comments regarding its services business and customer response to the iPhone 7, iPhone 7 Plus and Apple Watch Series 2 products. In the quarter, Apple sold 45.5 million iPhones, slightly more than the consensus estimate of 44.8 million but down 5% year over year. iPhone revenue totaled $28.2 billion, down 13% year over year. Apple sold nearly 9.3 million iPads in the quarter, ahead of the consensus estimate of 9.1 million but unit sales were down 6% year over year. iPad revenue was $4.3 billion, flat year over year. Apple sold 4.9 million Macs in the quarter, fewer than the consensus estimate of 5.1 million units and down 14% year over year. Mac revenues were $5.7 billion, down 17% year over year. Services revenue was $6.3 billion in the quarter, up 24%, a new all-time record, owing to rapidly increasing App Store revenue. Music revenue grew by 22%. Revenue from other products, which include Apple TVs, Apple Watches, Beats products, iPods and Apple-branded third-party accessories, totaled $2.4 billion, down 22%. EPS was $1.67, down 14.6% year over year but beating the consensus estimate by $0.03.

ADDITIONAL DETAILS FROM THE QUARTER

CEO Tim Cook offered the following additional points from the quarter: iPhone

• iPhone sales increased in 33 of Apple’s top 40 markets.
• The new iPhone 7 smartphones feature upgraded camera systems, immersive stereo speakers and the best iPhone performance and battery life offered thus far, owing to the custom Apple A10 Fusion chip. They also include Apple’s brightest, most colorful iPhone displays. For many models, demand continues to outstrip supply.
• Apple is implementing machine learning in its Siri digital assistant, which is now available in macOS Sierra.

Mac

• Apple is holding a new product launch on Thursday, October 27, and rumor sites have speculated that the company will unveil new iMac desktops and MacBook Pro and Air laptops.

Apple Watch

• Apple recently launched the Apple Watch Series 2, which includes built-in GPS, water resistance, a brighter display and a powerful dual-core processor.

Online Apps, Music Store and Apple Pay

• Cook highlighted the growing popularity of the company’s Apple Music service, which received the highest customer satisfaction rating in a recent survey by JD Power.
• Apple Pay went live in Japan on October 24 and should see broad adoption in the country, as contactless payments are popular in Japan. Apple Pay was also launched recently in Russia and New Zealand and will soon be launched in Spain.
• The number of Apple Pay transactions increased by 500% in September, which saw more transactions than in the full 2015 fiscal year. Apple Pay is built into the Safari web browser in the latest version of macOS (version 10.12, which is called Sierra). Apple’s partners report that Apple Pay has the highest conversion rate of any digital wallet.

Services

• Apple expects its services business revenue to reach the size of a Fortune 100 company in fiscal 2017.

1Q17 OUTLOOK

Apple guided for 1Q17 revenues of $76–$78 billion, above the consensus estimate of $75 billion. The margin and expense ranges provided result in an EPS range of $3.06–$3.23, with the $3.15 midpoint below the consensus estimate of $3.21.