Here’s How Analysts Reacted to Apple’s Fiscal Q3 Earnings

Apple (NYSE: AAPL) released its fiscal Q3 2024 earnings after the bell on Thursday. The stock closed flat yesterday despite better-than-expected results. Here are the key takeaways from the report and how analysts reacted to Apple’s earnings.

Key Takeaways from Apple’s Fiscal Q3 Earnings

Apple’s revenues rose 5% YoY to $85.78 billion which was higher than the $84.53 billion that analysts were expecting. Its EPS came in at $1.40 which was again ahead of the $1.35 that analysts were expecting.

iPhone revenues fell 1% YoY to $39.3 billion but the metric was ahead of the $38.8 billion that analysts were modeling. Also, the revenues were higher YoY on a constant currency basis.

iPad revenues were $7.16 billion which was much better than the $6.61 billion that analysts were expecting. Mac revenues were $7.01 billion which was slightly lower than the $7.02 billion that analysts were expecting. Importantly, Services revenues rose 14% YoY to $24.2 billion and the metric was ahead of the $24.01 billion that markets were expecting.

Apple’s installed base of devices reached a new record high and while the company did not spell out the exact number, earlier this year it had said that the figure has surpassed 2.2 billion.

Apple’s guidance

Commenting on the fiscal Q4 guidance, Apple’s CFO Luca Maestri said, Apple said: “we expect our September quarter total company revenue to grow year-over-year at a rate similar to the June quarter.” The company expects Services revenues to grow in double digits at a “rate similar to what we reported in the first 3 quarters of this fiscal year.”

It guided gross margins between 45.5% and 46.5% in the current quarter. The above guidance assumes a 1.5% headwind from adverse currency movement.

AI Opportunity

Apple CEO Tim Cook was quite upbeat on the artificial intelligence (AI) opportunity and said, “We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers’ lives. We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential.”

A section of the market has been turning bullish on Apple in hopes that the upcoming iPhone 16 would fuel a replacement cycle. Replying to an analyst’s question on the replacement cycle, Cook said, “it’s very difficult mid-cycle to call upgrade rates.”

He however added, “I would just say that with Apple Intelligence, we are very excited about the level of value that we’re going to provide to users. And we believe that, that presents another reason for a compelling upgrade.”

Apple said that the AI features would be added in a staggered way. Notably, there is a question mark over Apple releasing these features in China and Europe and Cook said that the company is “constructively engaged” with regulators in both the regions.

Apple now has over 1 billion paid subscriptions and the number has more than doubled over the last four years.

The company continues to be a powerhouse when it comes to generating and returning cash to shareholders. During the quarter, it returned over $32 billion to shareholders in the form of dividends and share buybacks, with the latter accounting for the lion’s share. Apple ended the quarter with net cash flows of $52 billion.

Apple’s Sales in China Continue to Fall

Apple’s sales in Greater China – which includes mainland China, Hong Kong, and Taiwan – fell 6.5% YoY in the quarter of which roughly half was on account of forex impact. Apple meanwhile continues to be optimistic about the region which is its second-biggest market after the US.

Cook said, “we continue to be confident in the long-term opportunity in China. I don’t know how every chapter of the book reads but we’re very confident in the long term.”

Notably, Apple has lost market share to domestic Chinese smartphone brands. In response to a question on whether the weakness in China is more an Apple-specific issue as the company is facing heat from domestic companies, Cook did not provide a straight answer and said, “competitive environment there (China) is the most competitive in the world.”

How Analysts Reacted to AAPL’s Earnings

Wall Street analysts were quite impressed with Apple’s fiscal Q3 earnings. Morgan Stanley maintained its overweight rating on the stock and said, “While June Q results will do little to shift the investor narrative, a clean print/guide, late cycle iPhone strength, Services outperformance, and margin resiliency means Apple likely outperforms into the upcoming iPhone 16 and Apple Intelligence launches.”

JPMorgan analyst Samik Chatterjee also reiterated his overweight rating and said, “In relation to our bullish view on the AI upgrade cycle, a non-eventful quarter with Apple beating estimates across the board is exactly what is desired as we look forward to the AI upgrade cycle, which kicks off with the launch of iPhone 16 as well as the release of AI features with iOS 18/ iPadOS 18/ macOS Sequioa.”

Bank of America analyst Wamsi Mohan said that “best is yet to come” for Apple and added, “We further see the potential for significant acceleration of units in Dec qtr and overall in F25 with the rollout of Apple Intelligence.”

Brokerages Raised Apple’s Target Price

Several brokerages raised Apple’s target price following the fiscal Q3 earnings. Citi’s Atif Malik for instance hiked the stock’s target to $255 from $210. Wedbush, which has been a long-term Apple bull, also raised its target price by $10 to $285. Goldman Sachs also raised its target price from $265 to $275.

Meanwhile, despite strong earnings, AAPL stock closed only marginally higher yesterday amid the broad-based sell-off. Fellow “Magnificent 7” constituent disappointed markets with its Q2 earnings and Q3 guidance which sent its stock south. Intel too crashed after the company’s disappointing earnings.

The Nasdaq Composite entered the correction zone yesterday as the index has lost over 10% from its recent peaks, While Apple’s earnings and guidance looked strong, even it was not immune from the massive tech sell-off yesterday and came off its day’s highs to close just 0.69% higher.