Notes from Apple’s Q4 2015 earnings call

Notes from Apple’s Q4 2015 earnings call

Kicking off Apple’s conference call announcing its record-breaking numbers for Q4 2015, Apple CEO Tim Cook reported that the company had its largest absolute revenue growth ever, noting that Apple’s growth in one quarter was greater than the full year revenue of almost 90 percent of the companies in the Fortune 500. Cook also noted that in this past quarter Apple crossed 100 billion cumulative downloads from the App Store, debuted Apple Pay in the U.K., Apple Music in over 100 countries, and Apple News in the U.S. Cook mentioned that the company is ending the year on a “high note” with a record-breaking September quarter, and that while momentum for the iPhone 6 and iPhone 6 Plus remains strong, the company also set a new launch record for the iPhone 6s and iPhone 6s Plus. Another 5.1 billion dollars in service revenue, fuelled by the App Store, was also an all-time record. Cook also highlighted that the App Store now has over 13,000 Apple Watch apps, over 1300 of which are native apps, and the numbers are growing rapidly.
Cook went on to talk about the new Apple TV, noting that it went on sale yesterday with a huge first day. People are already watching more TV through apps today, and Apple believes that apps represent the future of TV and is working in that direction. Cook also touched on the iPad Pro launch scheduled next month, which will enable a new generation of apps for entertainment, productivity, design, illustration, engineering and more. Cook revealed that Apple Music now has 6.5 million paying customers, and Apple Music will be coming to China beginning this quarter along with iTunes Movies and iBooks. He mentioned that Apple Pay is seeing double-digit growth in transactions, and announced that Starbucks will roll out Apple Pay support to all of its stores in 2016, and that Apple is partnering with American Express to bring Apple Pay to eligible customers key global markets, with Australia and Canada coming this year, and Spain, Singapore, and Hong Kong coming in 2016. Cook mentioned that the iOS News app now has more than 70 publishers and just launched in the U.K. and Australia with partners such as the BBC, News Corp, The Telegraph, the Guardian, and more.

Apple CFO Luca Maestri noted that Apple had 5.1 billion in revenue in services, setting an all-time record in that category and an increase of ten percent over last year, mainly as a result of App Store sales, which have increased by 25 percent, with number of transacting customers growing 18% over last year. Maestri also noted that the App Store has seen tremendous momentum in China, with a 127% increase in revenue year-over-year, and tremendous developer growth with over one million developers now registered in China. Maestri also noted that Apple Watch distribution was expanded significantly, with the wearable device now available in 5000 locations in 32 countries.

During the Q&A portion of the call, Cook noted that Apple believes that the iPhone will continue to grow in Q1 based on the number of people who have upgraded that were in the install base prior to the iPhone 6 and iPhone 6 Plus, which is in the low thirty percentages, suggesting an open field for more iPhone sales, combined with increasing Android switcher rates. He also noted that penetration in emerging markets is quite low, and LTE penetration is also quite low and growing, suggesting that there is still room for more growth in new handsets such as the iPhone in these markets. Cook also noted that Apple is making good progress in countries such as Vietnam and Indonesia in recent quarters, and continuing to do well in China. Cook also noted that Apple TV is off to a great start, the Apple Watch is just getting going, and the App Store continues to have growth that is really great. Cook also stated that he’s really happy with the early days of Apple Music and people moving from the free trial to becoming paying customers. Cook also pointed out that Apple’s enterprise business is not to be underestimated, and he doubts many people know that Apple has built a $25 billion enterprise business with significant action going on to deepen this business even further. Cook also touched on the fact that second-hand iPhones being sold are contributing to Apple’s services revenue for things like the App Store and Apple Music.

When asked about the new iPhone Upgrade Program, both Tim Cook and Luca Maestri noted that while the program is “very popular” in Apple’s U.S. retail stored, it’s very small compared to the overall sales of iPhones, with Cook suggesting that carrier-based upgrade programs remain considerably more popular options, and that Apple is happy with that approach as it still offers iPhones at more reasonable price points for new customers and gets new iPhones into users’ hands. Cook suggested that in the longer term, the iPhone Upgrade Program may be expected to become more significant. In speaking about China and the recent economic problems in that country, Cook noted that Apple has not seen any impact, and that in fact the iPhone 6 was the number one selling smartphone in China, and the iPhone 6 Plus was in third place, and that Apple has said that it cannot tell the difference at the consumer level based on daily and weekly numbers and the number of people who are still coming into Apple Stores and purchasing Apple products in that country. Cook noted that Apple is investing in China for the long term, with the view that China will become possibly the most significant market for Apple’s ongoing revenue.

Discussing users moving to newer iPhone models, Cook clarified that for customers who purchased an iPhone last quarter and replaced a smartphone, 30 percent came from an Android device. Cook acknowledged that there may have been some switchers from other operating systems, but Android is the largest one by far, and that this number is the largest Apple has ever recorded since it began measuring it three years ago. Answering a question about the upgrade rate from older iPhone models being relatively low, Cook notes that he feels good that it’s a low number because it means that there are 69 percent of the people out there who haven’t bothered to upgrade yet, which Cook sees as an opportunity for additional growth.

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