Apple Share Price Rises 5% Taking Value Back Above $1 Trillion

Apple’s share price gained 4.9% yesterday, and at one stage was up around 6% to briefly take the iPhone maker’s valuation back above $1 trillion for the first time since early November last year. The rally was brought on by a positive earnings report that showed iPhone sales numbers have stabilised following a 6-month period over which revenues had slipped on poorer sales performance in China. Forward guidance on expected revenues over the current quarter ending in June, Apple’s third of its fiscal year, were also an improvement on analyst expectations.

Apple investors will have been happy to hear the company’s Chinese sales figures have shown notable improvement over the most recent quarter. Downward adjustments to sales prices and the introduction of new payments plans are credited with the upturn. An easing in trade tensions between China and the USA over recent months as well as China’s most recent economic stimulus package were also highlighted by chief executive Tim Cook.

Apple’s Greater China sales figures were, at $10.2 billion over the most recent quarter still 22% lower than over the same period of 2018. However, the figures marked an improvement on the 27% downturn recorded over the previous 3 months when compared with a year earlier.

Another major positive for the company was the relatively slower than traditional decline in sales over the current quarter. Consumer expectations beginning to build for the release of a new model in the autumn generally sees sequential revenue take a 13% to 15% hit over the three months ending June. However, this year it looks like that tail-off will be milder and only around 8%.

Apple’s overall revenue over the previous quarter was, at $58 billion, 5% lower than a year earlier, in line with its previous three months and roughly in line or very slightly ahead of analysts’ consensus forecast. It would have been 2% higher if not for gains in the dollar. Overall, the market’s reaction was one of comfort that the sharp decline in iPhone sales appears to have been arrested.

Elsewhere, the rest of Apple’s non-iPhone business looks strong. iPad revenues were up 22%, their best growth rate in 6 years. Significant upgrades to the most recent models have proven a success.

Services, the business unit Apple is relying on most to pick up the slack from iPhones sales, is also in good health. Revenue growth from services, which include the App Store, iTunes and iCloud was recorded at 16%, growing to a total of $11.5 billion. The strong margins the company makes on services compared to hardware make the unit far more important to Apple than the unit’s 20% contribution to overall revenues. The unit contributed a third of overall gross profit.

Big announcements made by Apple on March around its new Apple TV+ television and film content streaming and Stadia games streaming services plus a credit card in partnership with Goldman Sachs demonstrate the growing importance of services to the company’s future growth prospects. Until recently all the talk had been on what new ‘product’ Apple might come up with to succeed the iPhone. But it now looks as though commentators were looking in the wrong direction and the focus in the background has been on killer new services driving revenue.

A 5% increase in dividend payments was also announced as well as a $75 billion extension to Apple stock buy-back programme, though both were expected.