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3 More Takeaways From Apple's Earnings Call

By Evan Niu, CFA – Oct 30, 2020 at 5:58PM

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The Mac maker dodged a question regarding its partnership with Google while teasing that it has more things in store.

Apple (AAPL -1.75%) reported fiscal fourth-quarter earnings on Oct. 29, but investors weren't impressed as shares sank 6% following the release. The market seemed disappointed that the company didn't provide more specific guidance, but it's hard to blame Apple for taking a conservative approach to its outlook considering all the macroeconomic and operational uncertainties it's facing due to the coronavirus pandemic.

The Mac maker did make other notable comments on the conference call with analysts. Here are three takeaways.

iPhone 12 Pro in blue

Image source: Apple.

Is the Google deal at risk?

The Cupertino tech titan's services segment has been incredibly important in recent years, but has now come under intense scrutiny from regulators and lawmakers alike over potential antitrust issues.

Not only is the App Store under fire for its controversial cut of digital sales, which can range from 15% to 30%, but Apple's partnership with Alphabet subsidiary Google to be the default search provider in Apple products is also drawing ire from the Department of Justice, which filed an antitrust complaint against Google earlier this month.

"When you think about the Google antitrust pressure, what's the risk that you see some shrinkage in your licensing and other segment within services?" Morgan Stanley analyst Katy Huberty asked on the call. "And do you see opportunities for other services to make up for any potential weakness?"

Google's referral payments are a major growth driver for Apple's services business, and that revenue could be at risk if regulators attempt to dissolve the partnership on the grounds that it is anticompetitive. CEO Tim Cook pointed to Apple's growing portfolio of services, which help diversify that business while also holding potential to somewhat offset the possible loss of revenue from Google.

"I have no idea how the DOJ suit will go, but I think it's a long way from a conclusion on it," Cook demurred.

More financial services?

Apple has been pushing deeper into financial services in recent years, starting with Apple Pay back in 2014 and more recently including Apple Card. The company gets a small cut of all payments processed through Apple Pay, and Apple discontinued its long-standing partnership with Barclays in favor of the new card issued by Goldman Sachs.

Apple Card on an iPhone

Image source: Apple.

Recognizing the appeal of monthly installment plans, Apple has been leveraging Apple Card to provide 0% financing for an increasing array of products. Cook highlighted the benefits of these offerings earlier, in particular that Apple Card "is not using our balance sheet."

When asked by Cowen analyst Krish Sankar if there were more opportunities within Apple's fintech ecosystem, Cook said "we are very bullish about this area and view that there are more things that Apple can do in this space," before adding that financial services is "an area of great interest to us."

Another product event in November?

Apple hosted virtual product events in both September and October, but did not unveil all of the products that have been rumored to be in the pipeline. There have been reports of Apple working on a Tile-esque attachable accessory to find lost objects called AirTags, as well as over-ear noise-cancelling headphones to expand the audio product portfolio. Additionally, Apple has yet to officially announce the first Mac powered by Apple chips.

That raises the possibility that Apple will host yet another event for the third consecutive month. "Without giving away too much, I can tell you that this year has a few more exciting things in store," Cook said.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy.

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