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Apple Management Talks Services, the Value of Its Stock, and More

By Daniel Sparks - May 12, 2020 at 7:35AM

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Here's a closer look at the tech giant's fiscal second quarter -- and why management is setting aside an additional $50 billion to buy back its own stock.

As one of largest tech companies in the world, a lot of investors likely had their eyes on Apple (AAPL 0.96%) when it reported its fiscal second-quarter results on April 30. Many investors were likely hoping the tech juggernaut showed some signs of resilience during these uncertain times.

Fortunately, Apple managed to impress -- at least compared to lowered expectations after the company previously said it would miss its guidance for the period due to the impact of COVID-19. Apple squeaked out a 1% year-over-year revenue increase and a 4% bump to earnings per share. The iPhone maker's top and bottom lines for the period both easily beat analysts' average forecasts. 

To help investors go beyond these headline figures and get a better understanding of how Apple is faring, here's a look at three key takeaways from management during the company's fiscal second-quarter earnings call.

Apple CEO Tim Cook during the company's 2019 WWDC keynote presentation

Apple CEO Tim Cook. Image source: Apple.

Momentum in services

While the coronavirus didn't negatively impact the U.S. economic environment until the last few weeks of March, Apple saw a more significant impact during the period because of its presence in China. By mid-February, Apple management knew it should withdraw its guidance for the period; iPhone supply was constrained because of manufacturing restrictions in China and demand in the market was weak due to closures of both its own stores and third-party stores that sell Apple products.

But the tech company's services segment provided a nice boost for the quarter, continuing to grow sharply.

"Our long running investment in our Services strategy is succeeding. This business is growing and is a reflection of our enduring large and growing installed base," said Apple CEO Tim Cook.

Apple's services revenue rose about 17% year over year in fiscal Q2, to a record $13.4 billion. Services accounted for 23% of revenue. This was driven by strong growth in the App Store, Apple Music, video, cloud services, and the company's App Store search ad business, management said.

Broad-based growth in wearables

Also bolstering the quarter was even stronger double-digit growth from Apple's wearables, home, and accessories segment. The segment's revenue rose 23% year over year to  $6.3 billion.

Wearables, specifically, remain the segment's main driver. Wearables include sales of AirPods, Apple Watch, and Beats headphones. Apple said it saw strong double-digit growth in wearables across all five of its geographic segments.

Apple thinks there is "great value" in its stock

Finally, one more takeaway from Apple's earnings call worth highlighting is management's view of its stock price. The company said in its fiscal second-quarter update that it was authorizing an additional $50 billion to repurchase shares. Of course, share repurchases are only beneficial to shareholders if the company is buying back shares when they are undervalued. It seems Apple management thinks it can pull this off:

"We ... continue to believe that there is great value in our stock," said Apple CFO Luca Maestri during the call. Its $50 billion authorization for share repurchases -- on top of the $40 billion it still had remaining under its current authorization, is a testament to management's confidence in Apple's business, Maestri explained.

Investors, however, should note that Apple stock was trading close to $290 when the company reported earnings late last month. This means shares have already appreciated about 9% since Maestri commented on the company's stock price.

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