- Apple reported a 5 percent decline in total revenue and a 15 percent drop in iPhone revenue from the same period in 2018.
- The stock is up in early trading on Wednesday, though, as investors appeared to react to the news, which was better than expected.
- Investors are likely watching this report closely to get a better sense of how tech giants will be affected by slowing growth in China.
Luxury tech goods company Apple reported its quarterly earnings after the close of markets on Tuesday, Jan 29., in one of the most anticipated earnings calls in recent memory for the company. And although much of the news wasn’t positive, it appears to have satisfied markets in the short term as the stock is up about 5 percent as of midday on Wednesday, Jan. 30, in New York.
Cutting through all of the finance speak and techno-babble, here are the three important things you need to know about Apple’s recent earnings report.
1. It Was Bad, but Not as Bad as People Were Anticipating
Plenty of people might be seeing Apple’s stock climbing today and think it’s a real head scratcher. Revenue declined 5 percent from the same period last year, and there were some very troubling developments with regard to its iPhone business (more on that in a moment). So why is the stock up today?
Well, simply put, because it wasn’t as bad as people were thinking it would be. You have to put the tick up in stock price in the context of the 30 percent-plus decline the stock has experienced since the start of October, not to mention the fact that the company already warned investors that this was coming back at the beginning of the month.
So, Apple’s earnings were just bad at a time when a lot of people were fearing terrible, and that has some people deciding it’s a good time to buy after all.
2. iPhone Sales Are Definitely Down
Regardless of how the markets are reacting today, it’s clear that Apple has something of a problem with the iPhone — namely, that it’s not selling nearly as many of them. Revenue from the iPhone segment was down 15 percent from the same period last year, indicating that there’s just a lot less demand for the company’s premier product.
And that is definitely something of a red flag for Apple. Sales of iPhones have come to represent between 60 and 70 percent of total revenue for the company in recent years, making them an essential piece of the business. It’s part of why Apple announced in early November that it wasn’t going to report sales figures for specific segments anymore as investors appeared to be keying on those results and potentially overlooking others.
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3. Everyone Is Watching Apple to Learn More About China
Running under this entire story is the question of growth in China. Apple told investors that the entire 5 percent decline in total revenue could be attributed to slowing sales in China as the $13 billion in revenue there was over 25 percent less than it was last year.
And that’s going to be important to more than just Apple. The concerns about slowing growth in China are big for most American companies, but it’s still not 100 percent clear what that’s going to mean in terms of dollars and cents. As such, this earnings season is likely going to see every earnings report filtered through the lens of how business in China is going and how that’s affecting the bottom line.
That makes Apple — the first FAANG stock to report — an important bellwether for the rest of the market. If one of the world’s most valuable companies is taking a 5 percent drop in revenue based solely on sales in China, that gives investors a little more to go on as they try to determine how the same macroeconomic conditions are going to affect stocks like Alphabet, Facebook or Netflix.
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