Apple reassures markets

Investors were eagerly awaiting Apple’s results, fearing that weak numbers could trigger a selloff on markets. But Apple did not disappoint, thanks to its high-margin services.

Apple’s services gross margin reached a whopping 63%. This is the first time that the company disclosed its gross margin. This sent the company’s shares up.

Analysts at Jefferies weren’t far, they previously estimated a 64% gross margin for services, with the App Store growing from $13 billion in 2018 to over $32 billion in 2023 (19% 5-yr CAGR), with 80% gross margin. Apple Music was forecast to be growing much faster, from $3.7 billion in 2018 to $16 billion in 2023 (34% 5-yr CAGR), but with lower gross margin of 19%.

However, while services performed well, the company’s hardware business did not do so well, and Jefferies is now reducing near-term ests for the third time in 2 months. “Hardware is beset by a number of issues including China macro, lengthening smartphone upgrade cycles, and FX...issues unlikely to be fixed in the near term.”