Stocks US Market

Apple $AAPL Q1 FY23 Results – Key Takeaways

Calvin Lo

Apple (AAPL) reported its Q1 FY23 (Q4 2022) results on 2nd Feb 2023. In its press release, Apple highlighted that its installed base of active devices has crossed the 2B mark, and its Services segment hit an all-time revenue record.

Read also: Apple sales drop 5% in largest quarterly revenue decline since 2016 | CNBC

Results Highlights

  • Revenue $117.2B (-5% yoy), missed by -$4.5B
  • GAAP EPS $1.88, missed by $0.07
  • Dividend was maintained at $0.23 per share for the quarter payable on 16th Feb 2023, which works out to a forward dividend yield of 0.6%.
Source: Seeking Alpha

Key Takeaways

  1. FX headwinds, supply constraints, challenging macroeconomic environment
  2. Services growth
  3. Large installed base of active devices

FX headwinds, supply constraints, challenging macroeconomic environment

Sales on almost all Apple’s product lines declined, with the exception of iPad which was boosted by new releases this quarter. CEO Tim Cook in the conference call attributed the drop in sales to 3 factors: FX headwinds, supply constraints, and a challenging macroeconomic environment.

Apple derives ~58% of revenue is from outside US, so unfavourable FX (~800 bps impact) due to higher USD is not surprising. On a constant currency basis, revenue actually grew.

Challenging macroeconomic environment isn’t either, since almost every company (except Energy majors) are impacted by inflation, rising interest rates, and Russia-Ukraine war.

On supply constraints, Apple shared that COVID-related lockdowns in China had severely disrupted production, causing shipment delays. However, CEO Tim Cook mentioned that production has normalised and is back to where Apple wants it to be.

Services growth

Apple managed to eke out a small 6% increase in Services revenue to a record $20.8B. Among the service categories, Apple hit all-time revenue records for cloud services, payment services and music. Services GM also increased by 30 bps to 70.8%. The high GM for Services means that any growth has an outsized effect on profitability compared to Products. Services now makes up ~18% of total revenue.

Large installed base of active devices

Apple’s installed base crossed 2B active devices, which is 2X in the last 7 years. Apple highlighted Apple Watch in particular, of which 2/3 of customers who purchased during the quarter were new to the product.

The larger base also bodes well for Services revenue, with the added advantage of it being recurring revenue vs Products which are more dependant on new product release cycles. In fact, Apple reported 935M paid subscriptions, up 150M over the past year and 4X in the last 5 years.

Final thoughts

First up, I admit I’m an Apple fanboy (I own more Apple products than I’m proud of), so take my views with a huge pinch of salt. That said, I try to be as objective as I can when it comes to the stock.

Personally, I don’t see much to be concerned. Apple was hit pretty hard by FX headwinds similar to Microsoft. It was worse for Apple due to the large proportion of revenue derived from overseas. USD has eased recently as the Fed slows rate hikes, although still expected to be strong. China has also eased lockdowns, so supply chains should start to normalise in coming months.

Even in the event of a recession, I think people will still continue to buy Apple products. Maybe some will delay their purchase or downgrade to a lower end model, but unlikely (at least for me) to switch out of the sticky Apple ecosystem. At least for now, I don’t see a worthy competing ecosystem so I’m still firmly in the Apple camp.

That said, I think Apple stock (AAPL) is still not cheap especially with the recent rally to ~$152, now trading close to 26x P/E. With the exception of Meta (META), so far most companies seem to be reporting earnings below expectations. With tech layoffs possibly also spreading to other sectors and expectations of a recession looming, I think they’ll be better opportunities to pick up AAPL shares at a lower price (I might start adding ~$130, not financial advice).

Disclosure: I’m long AAPL

Follow me on Facebook, Telegram, Twitter and Youtube.

Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

Download my FREE Ebook: How to Start Investing in Stocks for Beginners

For more investing tips, visit my Guide page.

For more investing resources, see my Referrals page.

Disclosure: This post may contain affiliate links and I may get a commission when you click on the links or open an account through the links, at no additional cost to you. I only recommend products or services that I have personally tried and have found useful.