In their last earnings call in 2023, Apple's quarterly revenue reached $89.5 billion, marking a decline for the fourth consecutive quarter. iPhone revenue amounted to $43.8 billion, with a year-over-year growth of 3%, primarily driven by increased sales in emerging markets such as India, Latin America, and the Middle East, setting quarterly revenue records.
However, revenue from Mac, wearable devices, home, and accessories fell below market expectations. Service revenue reached $22.3 billion, reaching a historical high. The gross profit margin was 45.2%, a historic record, mainly due to higher profit margins resulting from better-than-expected service revenue.
Apple's stock price continued to rise after the earnings call, reaching a historical high of $199.62 on December 14th. Apple's management appears to have not reached a consensus on the revenue outlook for the first quarter of fiscal year 2024, mainly due to the lack of consensus on Mac, iPad, and other hardware revenue. It is reported that management expects a dual situation of iPhone revenue growth and significant deceleration in iPad and other hardware revenue, while service revenue will continue to maintain stable growth.
With intense competition in the Chinese smartphone market, Apple's activation volume in China in the fourth quarter of 2023 fell by 10% year-on-year. Despite maintaining the top position, Huawei's new 5G Mate 60 saw a 79% year-on-year increase in activation, ranking third. Xiaomi, with a 38% year-on-year growth in activation, secured the second position. Considering these figures, Apple's leading position in China seems to be gradually weakening.
In this context, Apple's reduced the price of iPhone 15, and the company received downgrades from several institutions in January, such as Barclays, Piper Sandler, and Redburn, causing the stock price to fall to $180 at one point. However, with Bank of America upgrading Apple to a buy rating, citing Vision Pro as bringing performance growth to Apple, the market seems to have regained confidence in Apple's future growth, and the market value has returned to $3 trillion.
Nevertheless, Vision Pro still faces dual constraints of high price and low shipment volume, with only 60,000 to 80,000 units in stock at present. Considering that nearly half of Apple's revenue comes from iPhones, at least from the current trend, Apple's sales are in an awkward decline. In previous years, Apple's old models were discounted just before the release of new models. The significant discounts this time will make future Apple users face a choice: whether to wait for discounts after the release of new models before making a purchase.
Therefore, the launch of Vision Pro may help Apple's stock price rebound in the short term emotionally, but investors' long-term focus could well be on the decline in the smartphone business. After Vision Pro opened for pre-orders, tens of thousands of devices were sold out in 18 minutes, indicating the product's "hot" status.
As core users make purchases, the risk of a weakening demand side due to the product's positioning not aligning with mass consumer goods is evident. Apple's rather subdued noise in the field of AI means - at least publically - it doesn't have the 'AI hype' that has been a growth engine for the likes of Microsoft, NVIDIA, Google, and other companies with intelligent cloud businesses.
Apple's current P/E ratio is 31 times, much higher than the average level of the past 10 years, with market suggestions this could be perceived as somewhat overvalued for a company experiencing a slowdown in growth.
Apple's first-quarter financial results for the fiscal year 2024 will be announced after the market closes on February 1st:
- Revenue: $117.5 billion, a year-over-year growth of 0.29%.
- Earnings per share: $2.09, a year-over-year growth of 11.17%. Data source: Zacks Research.
