Apple is open for business on Thursday Announced fourth quarter results for fiscal year 2014., and the results were predictable–another record quarter. But of course, Wall Street had already anticipated all of this and had moved on to deciding that a lot of Apple’s growth was not quite as growy as they expected. It happens.
Still, from the broader perspective of looking at Apple’s financial disclosures as indicators of how Apple is doing as a business, there were interesting tidbits amid the stacks of cash and the wailing of financial analysts seeking endless growth. There are always.
Services are slow
Apple values all of its legally mandated revenue disclosures equally. But the ones that allow the company to show growth to Wall Street have a greater value than the rest. Services is on an upward trend for almost as long as it has been.
Services is facing a problem. The category, which includes Apple TV+, Apple Music and Apple Store, has seen its total revenue decrease sequentially in the past two quarters. More shocking, perhaps, is the 5 percent year-over-year growth in a category that’s almost always in the double digits. It’s the lowest year-over-year growth number in the category in the decade we’ve been tracking Services revenue.
It can’t be great for Apple’s engine of growth to stall out, but the company says there’s no reason to get upset because the services business is especially affected by the strength of the U.S. dollar. It makes sense when you think it through: Apple sets prices for services in local currencies and doesn’t change them when the exchange rates change. So when Apple TV+ debuted in the U.K., it was £4.99, or $6.41 per month. Today, it would only be worth $5.73 a month. This is being repeated in almost every territory Apple does business in, and it’s a drain on the Services business more than any other.
“We achieved double-digit constant currency growth in Services on top of growing 26 percent during the September quarter a year ago,” Apple CFO Luca Maestri said on Thursday. Yes, that’s right–if all currencies were lashed together and no longer floated, Apple’s year-over-year services growth would have been at least double what it was.
There are, however, some limitations. WereMaestri stated that there are soft spots. App Store revenue seems to be declining. This could be because people are going out more than staying at home in earlier stages. Digital advertising was also weak.
Ironically, during a week when Apple was widely criticized for littering App Store pages with ads for gambling apps, CEO Tim Cook’s only statement about the company’s ad business was to downplay it. “Our specific advertising business is not large relative to others,” he said. “We don’t release the exact numbers on it, but it’s clearly not large.” Is that a threat or a promise?
The Return of the Mac
Just as I was about to begin my Macworld experience, Steve Jobs returned and signed the Microsoft deal. He launched the Think Different campaign. NotIt was becoming apparent that it was a bad career move in 1997.
Now, take a look at your Mac. Just a quick note to say that the Mac, a 36-year-old computing platform, had once again enjoyed its best quarter in history. Apple’s fiscal fourth quarter sales of Mac hardware exceeded $11.5 billion, surpassing the previous record by $600 million. The quarter ended with a 25 percent increase in revenue over the previous year.
It’s pretty awesome, but there’s a catch–the quarter was this good in part because last quarter (7.4 billion in sales, the Mac’s weakest quarter in more than two years, down 10 percent from the year-ago quarter) was so bad. Here’s what happened: COVID shutdowns in Shanghai made it impossible for Apple to assemble Macs for a month or two, and it meant that last quarter, the company wasn’t able to fulfill demand. You might have noticed your eyes tearing up when you tried to purchase a Mac Studio in spring.
This quarter was the one in which the Mac settled all family business. Cook and Maestri said that Apple was able meet all of the unmet demand from the last quarter, filled the channel for the current quarter and fulfilled increased demand through the launch of its most beloved Mac, the M2 MacBook Air.
It was an excellent quarter for the Mac. It was actually the best quarter! But let’s also remember that it’s partly because last quarter was so bad.
Scrooge McDuck check-in
When I started writing these pieces about Apple’s results many years ago, I used to joke about how much cash Apple had on hand because the number kept growing. We’re talking billions of dollars just sitting around because the company was making money so fast it just couldn’t spend all of it.
This joke was quickly forgotten when Apple announced its goal to be cash-neutral in the future. It began buying back stock more aggressively and paid dividends to shareholders. Maestri confirmed that Apple had purchased $550 back on Thursday BillionsIn stock. In the last quarter, it paid out $3.7B in dividends and spent $25.2B in open-market stock buybacks.
Apple’s decision to sell its cash seems impossible, even though it is a Sisyphean task. Maestri today admitted that Apple made $111 billion during the quarter in free cash flow and that the net cash balance was still $49 million at the close of the quarter. This is actually progress, as at its height Apple’s cash hoard 100 billion dollars brokered.
“We continue to make progress toward our goal of becoming net cash neutral over time,” Maestri said again. It was the sound of a man who just can’t spend the money fast enough–Luca’s Billions, let’s call it. Cook did point out that Apple is buying companies at a rate of one acquisition per month, so at least they’re unloading some of that cash on intellectual property, talent, or “preferably both,” as Cook put it.
But, that’s still $49 billion of cash. Apple could purchase Nintendo. It is not likely that it will.
