Apple Earnings Show That Growth Is Back (and Likely Here to Stay)

Not only did revenue growth accelerate, but management also guided for an even stronger increase during the holiday quarter.

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Apple (NASDAQ: AAPL) already returned to growth in its third quarter of fiscal 2019. It barely pulled it off, however, growing its top line by just 1% year over year during the period. And the midpoint of management’s guidance range for fiscal Q4 implied a return to declining revenue, suggesting the top-line resurgence might have been short-lived.

But Apple’s strong fourth quarter results and management’s optimistic outlook for the company’s important holiday quarter not only show an acceleration in the company’s top-line growth, but they also paint a picture of a company with a revived growth story.

Apple’s fiscal fourth-quarter results

Revenue in the fourth quarter increased 2% year over year to $64.04 billion. While this is a small increase in percentage terms, the period’s total revenue was above management’s guidance range, which was $61 billion to $64 billion. Furthermore, the top line was also more than $1 billion ahead of analysts’ average forecast for fourth-quarter revenue of $63.0 billion.

Earnings per share of $3.03 also exceeded analysts’ consensus estimate of $2.84. In addition, the 4% year-over-year growth in EPS marked a return to bottom-line growth; in fiscal Q2, earnings per share were down 7% year over year.

Fueling the quarter was strong performance from iPad, services, and the wearables, home, and accessories segment. iPad revenue increased 17% year over year to $4.7 billion. Services, which is Apple’s second-largest segment, saw its revenue increase 18% year over year — an acceleration from 13% growth in fiscal Q3. This put services revenue at $12.5 billion.

Meanwhile, wearables, home, and accessories revenue soared 54% year over year — also an acceleration from 48% growth in fiscal Q3. Total wearables, home, and accessories revenue was $6.5 billion.

As expected, the iPhone business continued to face headwinds — namely a tough year-over-year comparison. Revenue was down 9% to $33.4 billion. But this year-over-year decline importantly moderated from a 12% decline in iPhone revenue in fiscal Q3, meaning the segment didn’t drag on overall business as much as it has in recent quarters.

Mac revenue declined 5% year over year to $7.0 billion.

Looking ahead

One of the most encouraging figures from Apple’s fiscal fourth-quarter updates were its guidance.

Management said it expects revenue in its first quarter of fiscal 2020 to be between $85.5 billion and $89.5 billion. Not only is the midpoint of this guidance range ($87.5 billion) ahead of analysts’ average estimate for fiscal first-quarter revenue of $86.9 billion, but it also implies a 4% year-over-year increase in revenue. In other words, Apple expects revenue growth to accelerate once again — good news for investors since Apple’s holiday quarter is its most important period.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple and recommends the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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