A 10% drop in iPhone sales might seem like a problem for Apple since iPhones make up half of its revenue.
But on Thursday, when Apple announced this decrease in its second-quarter earnings report, investors didn’t seem bothered. The stock went up more than 6% after the market closed, the biggest increase since November 2022.
Instead of worrying too much about iPhone sales, investors focused on the good news. Apple’s gross margin, which shows how much money they make after costs, went up to 46.6%. This is because Apple’s services business, like Apple Music and iCloud, is making more money.
Apple also said it expects its overall revenue to grow slightly this quarter, after a 4% drop last quarter. Analysts were predicting growth of 1.3% for this quarter.
Gene Munster from Deepwater Asset Management said he was relieved by this news. He thought Apple’s revenue might not grow at all, or even decrease a little.
But what made investors happy was Apple’s announcement that it would buy back $110 billion of its shares. That’s the most a public company has ever spent on buybacks. Apple has been doing this every year for the past three years, spending $90 billion each year.
This jump in the stock price shows how much investors like that Apple is giving them some of its extra cash. It’s a big change from how investors used to see Apple, as a company that just sells a lot of iPhones. Now, they see it as a company that makes a ton of money and shares it with investors.
“Our free cash flow generation has been very strong over the years, particularly the last few years,” Apple CFO Luca Maestri said.
Apple has 2.2 billion active devices, showing how many people use their products. Even though revenue dropped by 4%, Apple still made nearly $24 billion in profit, just a little less than last year.
Apple said iPhone sales dropped because last year’s sales were so high after there were not enough iPhones available. Investors are hoping for iPhone sales to grow again, especially if Apple releases an iPhone with artificial intelligence features.
While Apple gave some guidance for total revenue, it didn’t say how many iPhones it expects to sell. This is unusual, even for Apple, which has been giving less guidance since the pandemic started. Usually, Apple’s CFO talks about iPhone sales trends, but this time he didn’t.
There’s no guarantee Apple will keep buying back shares at this rate. The company says it’s trying to use up its huge cash pile, which was $162 billion at the end of the quarter. When Apple has about the same amount of debt as it has cash, it will decide what to do next.
As of the end of 2023, Apple had spent $658 billion on buying back its shares in the past 10 years, more than any other company.
“For the last couple of years we were doing $90 billion and now we’re doing $110 billion,” Maestri said.
Maestri also said it will take a while for Apple to get to a point where it has as much debt as cash. When that happens, Apple will decide what’s best for the company.
