What happened
Shares of tech giant Apple (AAPL +1.08%) popped on Wednesday, rising as much as 5.6%. As of 11:03 a.m. EST, the stock was up 5.1%.
The stock's gain follows Apple's fiscal first-quarter earnings release. While the company's earnings per share and revenue for the quarter beat consensus analyst estimates, the main reason for the Street's bullishness toward the stock on Wednesday is likely news from the company's services segment. Apple revealed the segment's gross margin for the first time -- and it's impressive.
Image source: Apple.
So what
For its fiscal first quarter of 2019, Apple reported revenue of $84.3 billion, slightly ahead of a consensus analyst estimate for revenue of $84 billion but down from revenue of $88.3 billion in the year-ago quarter. Notably, however, Apple had already told investors in a Jan. 2 letter to shareholders that its revenue for the period would be close to $84 billion. Earnings per share for the period were a record high, at $4.18. This was ahead of a consensus analyst forecast for $4.17.
Apple said its services segment, which boasted 19% year-over-year revenue growth during the quarter, had a gross margin of 63%. This easily trumps Apple's consolidated gross margin of 38%. Such a hefty gross margin for its fast-growing services segment bodes well for the company's ability to make up for headwinds in its iPhone business.
Now what
Apple expects its year-over-year decline in revenue to persist in its fiscal second quarter, as the iPhone segment is expected to continue weighing on the company's overall performance. Management guided for revenue during the period to be between $55 billion and $59 billion. This compares to revenue of $61.1 billion in the company's second quarter of fiscal 2018.
Apple's strong services segment likely gave investors incremental confidence in the company's ability to navigate further challenges in its iPhone segment, which saw revenue decrease 15% year over year in its fiscal first quarter.
Check out the latest Apple earnings call transcript.
