Apple’s stock fell 3% after its fiscal fourth-quarter earnings, despite beating revenue and EPS estimates, due to a lower-than-expected gross margin forecast for the current quarter and disappointing iPad sales.
This marks CEO John Ternus’s first earnings report, where he highlighted a “best fiscal year ever” despite challenges like rising memory costs and a tough PC/smartphone market, while investors scrutinize future growth drivers and AI monetization strategies.
Apple's stock experienced a 3% decline in extended trading after the company delivered its fiscal fourth-quarter earnings report, the first under new CEO John Ternus. While Apple surpassed analyst expectations for both revenue and earnings per share, a disappointing gross margin forecast for the current quarter and weaker-than-anticipated iPad sales spooked investors.
Here's a breakdown of Apple's performance compared to LSEG analyst estimates:
- EPS: $2.10 (vs. $1.99 expected) - Beat
- Revenue: $114.48 billion (vs. $113.39 billion expected) - Beat
Delving into key product lines:
- iPhone revenue: $57.58 billion (vs. $56.54 billion estimated) - Beat, up over 17% year-over-year. This quarter included eight days of sales for the new iPhone 18 Pro.
- Mac revenue: $10.79 billion (vs. $9.61 billion estimated) - Beat, surging nearly 24% annually, attributed to strong sales of the MacBook Neo and MacBook Pro.
- iPad revenue: $6.23 billion (vs. $6.7 billion estimated) - Miss, contracting over 10% annually, making it the worst-performing product category. Supply constraints and tough comparisons to the previous year were cited.
- Other Products revenue: $31.57 billion (vs. $31.58 billion estimated) - Miss
- Wearables, Home and Accessories revenue: $8.3 billion (vs. $9.06 billion estimated) - Miss, declining nearly 8%. Ternus highlighted a "new kind of plan" for home products, referencing the HomeView device.
- Gross margin: 47.9% (vs. 47.5% estimated) - Beat, but significantly impacted by approximately 1 percentage point from tariff refunds.
Looking ahead, Apple's guidance for the December quarter painted a mixed picture:
- The company anticipates revenue to grow between 7% and 10% annually, topping the 6.1% average analyst estimate.
- However, the gross margin forecast of 45% to 46% trailed the 46.3% average estimate, signaling pressure from higher memory costs, despite tariff refunds.
- Services sales are expected to rise between 8% and 9%, indicating a deceleration from previous growth rates.
John Ternus, who assumed the CEO role on September 1st, delivered his inaugural earnings call. He emphasized a "best fiscal year ever" despite supply constraints and foreign exchange headwinds. Ternus also addressed the monetization of AI, suggesting hardware upgrades or switches as a compelling reason for consumers.
The company's strong performance in Greater China stood out, with the business growing 21% annually to $17.53 billion in sales, driven by iPhone and Mac. Apple's capital expenditures remain modest at $2.24 billion, notably lower than its hyperscaler peers investing heavily in AI.
The broader market for smartphones and PCs faces a challenging environment due to a global memory crunch, leading to surging component prices. Apple, having already raised prices across its product portfolio, acknowledged higher memory costs this quarter. Despite these challenges, Ternus expressed confidence in the company's future.
Concerns also arose around the launch of the new foldable iPhone Duo, which went on sale after the reported quarter. Reports of screen failures have presented an early challenge for the device, with limited supply and shipping estimates extending into 2027.
Analysts remain cautious on Apple's stock, citing iPhone uncertainties, limited AI monetization, and concerns about the App Store. Bank of America, while maintaining a 'Buy' rating, highlighted that gross margins could drop in coming quarters once tariff refund boosts subside. Needham analyst Laura Martin noted Apple's reliance on the smartphone form factor amidst broader industry experimentation with new AI hardware.
