Why Apple Services Segment Could Be the Next Big Thing

Apple Inc. (NASDAQ: AAPL) reported fiscal first-quarter financial results after markets closed on Tuesday. The iPhone giant posted $3.36 in earnings per share (EPS) and $78.4 billion in revenue, versus consensus estimates from Thomson Reuters that called for $3.22 in EPS and $77.38 billion in revenue. The same period of last year reportedly had EPS of $3.28 and $75.87 billion in revenue.

The company reported its segments as follows:

• The iPhone segment shipped a total of 78.29 million units for total revenue of $54.38 billion, an increase of 5% in units and 5% in revenue year over year.
• iPad shipped 13.08 million units for $5.53 billion in revenue, a decrease of 19% in units and a decrease of 22% in revenue from the same period last year.
• The Mac segment shipped 5.37 million units for a total of $7.24 billion in revenue, with units rising by 1% and revenue rising by 7%.
• Services revenues rose 18% year over year to a total of $7.17 billion in revenue.
• Other Products had revenues that totaled $4.02 billion which was down 8% from last year.

In terms of guidance for the fiscal second quarter, the company is calling for revenues in the range of $51.5 billion to $53.5 billion with a gross margin between 38% and 39%. The consensus estimates are calling for $2.09 in EPS and $53.94 billion in revenue for the coming quarter.

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Apple’s board of directors has declared a cash dividend of $0.57 per share of common stock, which will be payable on February 16, for shareholders of record on the close of February 13.

Tim Cook, CEO of Apple, commented:

We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch. Revenue from Services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline.

On the books, Apple’s cash, cash equivalents and marketable securities totaled $60.5 billion at the end of the quarter, versus $67.2 billion at the end of the previous fiscal year.

Shares of Apple closed Tuesday at $121.35, with a consensus analyst price target of $133.40 and a 52-week trading range of $89.47 to $122.44. Following release of the earnings report, the stock was up 2.7% at $124.67 in the after-hours trading session.

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