Apple (NASDAQ:AAPL) had already warned investors in February that it would miss its revenue guidance due to the COVID-19 pandemic, without quantifying by how much. The Mac maker just reported first-quarter earnings, and it easily beat Wall Street's lowered expectations thanks in part to strong performances in the services and wearables segments.

This is also the time of year when Apple updates its capital return program. Here's what investors need to know.

Apple Piazza Liberty

Image source: Apple.

Three phases of the quarter

Revenue in the first quarter was $58.3 billion, compared to the consensus estimate of $54.6 billion in sales and the midpoint of Apple's original guidance of $65 billion. The core iPhone business saw revenue decline by 7% to $29 billion, while both the Mac and iPad also saw sales fall. On the bright side, services set a new quarterly record of $13.3 billion in revenue, and the wearables, home, and accessories segment saw sales rise to $6.3 billion.

On the conference call with analysts, CEO Tim Cook described three distinct phases that the business experienced during the quarter. In the first five weeks, things were going so well that Apple was confident that it would enjoy a record March quarter. In the five weeks that followed, COVID-19 started to impact both supply and demand, which is when Apple decided to withdraw its guidance. During the final three weeks of the quarter, demand took another hit as the novel coronavirus spread globally and countries implemented various lockdowns.

Apple has already mostly overcome the supply chain disruption and production was able to get back to "typical levels" near the end of March, according to Cook.

Paid subscription growth finally accelerates

CFO Luca Maestri said that Apple's installed base has hit a new all-time high, including all geographical markets and product categories. Maestri did not provide an exact figure, but previously said in January that the installed base had hit 1.5 billion.

The growing installed base, combined with the introduction of new services, is helping to drive growth in the services business. Apple added 35 million paid subscriptions across its platforms during the quarter, representing the inevitable acceleration of paid subscription growth.

Chart showing paid subscriptions growth accelerating

Data source: Apple earnings calls. Chart by author. Fiscal quarters shown.

The company had previously added 30 million per quarter for nine straight quarters, and Apple now has 515 million paid subscriptions. The tech giant is on track to hit its target of 600 million paid subscriptions by the end of 2020. The strength of the services business also helped reinforce profitability.

Speaking of profitability

Gross margin was flat on a sequential basis at 38.4%. While hardware products saw gross margins decline due to the loss of operating leverage coming out of the holiday shopping season -- products gross margin contracted by nearly 4 full percentage points on a sequential basis -- the profitable services business picked up the slack.

Services gross margin expanded sequentially to 65.4%, more than double products gross margin of 30.3%. The shift in the revenue mix toward services helped offset the aforementioned loss of leverage on the product side, according to Maestri.

$50 billion buyback bump

Apple's board of directors has authorized a $50 billion increase in share repurchase authorization, which was less than what analysts had expected. When asked about that apparent shortfall, Maestri pointed out that Apple still had over $40 billion in repurchase authorization at the end of the quarter, even after buying back $18.5 billion in stock.

Chart showing buybacks and total authorization

Data source: SEC filings. Chart by author. Fiscal quarters shown.

The company has now bought back $344.7 billion in stock to date, compared to the previous total authorization of $385 billion. The $50 billion bump brings that total authorization to $435 billion, so Apple has just over $90 billion of authorization to work with until the next capital return update a year from now. The company also boosted its quarterly dividend by 6% to $0.82 per share.

Apple's net cash position has now declined to $83.3 billion as the company continues to pursue its "net cash neutral" goal. In the understatement of the year, Maestri added, "Liquidity has not been an issue for us." You don't say.

Due to the ongoing uncertainties and rapidly evolving conditions surrounding COVID-19, Apple did not provide guidance for the second quarter.