Even the most valuable company in the world isn’t immune to the tech industry’s larger financial challenges, including slowing growth and inflation. As analysts warned it might, Apple recorded its first year-over-year revenue decline since 2019 Thursday, reporting quarterly revenue of $117.2 billion, down 5% year over year. Earnings per diluted share for the first quarter of fiscal 2023 were $1.88.
Despite this, the company reported record revenue of nearly $21 billion in its Services sector, exceeding expectations, as well as more than 2 billion active devices. The Services sector includes Apple TV+ and other media businesses, along with equipment warranties, cloud-storage subscriptions and other non-hardware offerings.
As Apple continues to fight for share in the competitive smartphone industry, selling media subscriptions and other services to its installed base becomes ever more critical to its financial picture.
“As we all continue to navigate a challenging environment, we are proud to have our best lineup of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do,” Apple CEO Tim Cook said. “During the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”
CFO Luca Maestri added, “We set an all-time revenue record of $20.8 billion in our Services business, and in spite of a difficult macroeconomic environment and significant supply constraints, we grew total company revenue on a constant currency basis. We generated $34 billion in operating cash flow and returned over $25 billion to shareholders during the quarter while continuing to invest in our long-term growth plans.”
During last year’s fourth quarter earnings report, for the period ending Sept. 24, Apple posted record September-quarter revenue of $90.1 billion, up 8% year over year, as well as quarterly earnings per diluted share of $1.29, up 4% year over year. In total, annual revenue was $394.3 billion, up 8% year over year, and annual earnings per diluted share were $6.11, up 9% year over year.
The September report came after the company launched its latest versions of the iPhone (the 14 and 14 Pro models) and included revenue from the first several days of sales. The holidays are usually an important time for this sector of the company’s earnings, but Wall Street projections highlighted that inflation, layoffs and production issues stemming from COVID restrictions in China might dampen revenue. As a result, analysts had expected Apple to post a revenue decline for its first fiscal quarter.
More broadly, projections reflected expected sluggishness in the Services business, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, all of which accounted for a little more than a fifth of sales last quarter, as a result of macroeconomic factors and weak ad markets.
During the company’s earnings call, Cook outlined that iPhone sales were at $65.8 billion for the quarter, down 8% year over year, but remained relatively flat on a constant currency basis, accounting for fluctuations from international sales. Meanwhile, Mac revenue was $7.7 billion, in line with expectations, which predicted negative impacts from foreign exchange rates, a challenging comparison resulting from the reimagined MacBook Pro introduction and macroeconomic environmental factors. At the same time, iPad revenue grew 30% to $9.4 billion, as compared to last year when the company faced supply constraints. Cook also pointed to the recently launched app Freeform, a whiteboard application, as an example of the company’s constant innovation.
On the streaming side for Apple TV+, Cook pointed to the 10-year-long partnership with Major League Soccer, hit movies like “Spirited” with Will Ferrell and Ryan Reynolds and shows like “Ted Lasso” and the new premiere “Shrinking” featuring Harrison Ford and Jason Segel.
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“Apple delivered a shockingly weak earnings report, with the tech giant underperforming expectations across nearly all segments, most notably its key iPhone business, and suffering its first revenue decline since 2019,” Jesse Cohen, a senior analyst at Investing.com, told TheWrap in a statement.
Behind the losses were a “potent combination of supply chain issues, limited iPhone production at its Foxconn plant in China, and currency-related headwinds [taking] a massive toll on Apple’s underlying business during the final three months of 2022,” Cohen added.