It's all about the device base
For the March quarter, Apple reported 2% revenue upside and 7% earnings upside. June guidance came in below expectations, calling for a 2% y/y revenue decline compared to Street estimates of 2% growth. It is worth noting, FX will be a 4% headwind in the June quarter, which means some investors may view the revenue guidance as in line with the Street. My sense is many analysts knew about the upcoming FX impact which means it should have already been reflected in the consensus estimates.
Two years ago I would have expected shares to be down on those results and guidance. Instead, they are up in after-hours trading by 2%. I believe the reason is investors are putting more weight into the company’s device base.
Apple’s earnings press release led with the Cook quote on the active device growth, and CFO Luca Maestri mentioned it twice in his prepared remarks. In the Q&A, the topic came up in 4 of the 12 questions.
Apple did not report the base’s growth rate as they did in the December quarter (up 8%), but they did report it grew which is impressive given products revenue was down 4.6% y/y in March. That means more Apple customers are adding devices, and many of the devices that get turned in/resold are being refurbished and sold to first-time Apple customers. The used Apple device story is emerging as the company’s avenue to target the most price-sensitive smartphone buyer. While Apple does not directly benefit from the sale of a used device, there is a long-term revenue opportunity of selling services and capturing hardware upgrades in future quarters.