Notes from Apple’s Q1 2016 earnings call

Notes from Apple’s Q1 2016 earnings call

Kicking off Apple’s investor conference call in which the company once again announced record-breaking numbers for Q1 2016, Apple CEO Tim Cook reported again that Apple had its strongest financial results ever, with all-time record quarterly revenue, noting that this is a huge accomplishment given the “turbulent world” around us. To put the iPhone’s sales numbers in perspective, Cook noted that 74.8m iPhones sold represents an average of over 34,000 iPhones sold per hour, every hour, 24 hours per day, 7 days per week, for 13 straight weeks, adding that this represents 50 percent more than the volumes in Q1 two years ago, and four times the volume of iPhones sold five years ago.

Cook went on to explain that Apple’s results are particularly impressive given the “challenging global macro-economic environment,” highlighting how major markets such as Brazil, Russia, Japan, Canada, Southeast Asia, and others have been impacted by slowing economic growth and weakening currencies, with the Euro and British Pound both down by double-digits since 2013. Major currencies such as the Canadian Dollar, Australian Dollar, Mexican Peso, and Turkish Lira have also declined by 20 percent or more. Cook explained how these currency fluctuations have had a meaningful negative impact on Apple’s results, noting that with constant currency Apple’s earnings would have been more than $5 billion higher, or more than the total annual revenue of an average Fortune 500 company. Cook also highlighted that Apple continues to see growth in China, with revenue growing 14 percent over last year, and Apple saw its highest ever quarterly iPhone sales and record App Store performance in China. “Despite economic challenges all over the world, Apple remains extremely strong,” Cook concluded.

Cook highlighted what else has changed since Apple’s last quarterly call, including the shipping of the iPad Pro and related accessories, as well as the new Apple TV with its own App Store, “laying the foundation for the future of television.” Cook noted that this was Apple’s best quarter ever for Apple TV sales, suggesting the new Apple TV was eagerly received by customers, and revealed that 3,600 Apple TV apps are now available on the App Store, covering everything from games to entertainment to educational programming. Cook also noted that the Apple Watch shipped to over 12,000 locations in 48 countries over the quarter and set a new quarterly record for Apple Watch sales. He also highlighted the launch of Apple Pay in Canada and Australia with American Express, as well as plans to bring Apple Pay to China, Hong Kong, and Singapore in the coming year, in addition to adding support for Apple Pay at Exxon and Mobil branded gas stations in the U.S.

Cook also noted that Apple has crossed 1 billion active devices for the first time, resulting in an accelerated growth in Apple’s services business — a large and important source of recurring revenue for the company. Cook then turned the call over to Apple CFO Luca Maestri, who went on to explain in more detail how Apple recognizes and measures revenue for its services business, reporting that Apple’s services revenue for Q1 2016 is $5.5 billion, and clarifying that Apple considers a device to be active if it has engaged with at least one of Apple’s services (e.g. iCloud, iTunes, etc) within the past 90 days.

During the Q&A portion of the call, Cook responded to a question about the iPhone Upgrade Program, noting that it has had a small contribution to Apple’s iPhone sales growth, but he believes it’s the Android switchers and emerging markets that are more important to Apple’s growth in this area. Cook noted that he was “absolutely blown away” by the number of switchers from Android — the highest level ever by far this quarter — and noted that market share and LTE penetration in emerging markets provide Apple with huge opportunities. Despite this, however, Cook believes that the iPhone Upgrade Program will be meaningful over time as “customers get into a different pattern.” Questioned about whether Apple sees a future in Virtual Reality, Cook noted that he doesn’t think it’s a niche and that it’s “really cool” and has some “interesting applications,” although he naturally refused to make any specific comments on whether or not Apple is working on anything in that area.

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