Apple, Inc. (NASDAQ: AAPL) reported its first quarter financial results for fiscal year 2018. The company beat estimates in both revenue and earnings, but fell short in iPhone unit sales. Apple shares were down 2.5 percent after open on Friday.
For the first quarter, Apple reported an all time record revenue of $88.3 billion, increasing 13 percent year over year, and beating analysts’ estimates of $87.3 billion. The company reported an also an all time record EPS of $3.89, increasing 16 percent year over year, and beating analysts’ estimates of $3.86.
International sales accounted for 65 percent of Apple’s quarterly revenue. Japan sales grew 26 percent and Asia Pacific sales grew 17 percent year over year.
Apple sold 77.3 million iPhones in the quarter, but fell short of analysts’ estimates of 80 million units. iPhone sold units fell 1 percent year over year, but revenue grew 13 percent. iPhones alone drove in $61 billion.
The decline in iPhone units sold and performing under analysts’ estimates is largely due to the increase in the average iPhone price. For the quarter, the average iPhone price was approximately $796, compared to analysts’ expectations of $755.
“Maybe the two most important messages are that we believe iPhone revenue will grow double-digits as compared to last year during the March quarter and also and, importantly, that iPhone sell-through growth on a year-over-year basis will be actually accelerating during the March quarter as compared to the December," Chief Financial Officer Luca Maestri said in the earnings call as he tried to calm investors.
Despite Apple’s performance slowing down, the company was still able to report record revenue even though iPhone prices have dramatically increased. iPhone X prices were $999, which accounted for the spike in iPhones’ average price.
“We’re thrilled to report the biggest quarter in Apple’s history, with broad-based growth that included the highest revenue ever from a new iPhone lineup. iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November,” said Tim Cook, Apple’s CEO.
“We’ve also achieved a significant milestone with our active installed base of devices reaching 1.3 billion in January. That’s an increase of 30 percent in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers.” added Cook.
For the second quarter of fiscal year 2018, Apple forecasts revenue between $60 billion and $62 billion and a margin between 38 percent and 38.5 percent. Analysts are projecting revenue of $65.73 billion and margin of 38.9 percent.
On Friday, analysts began to downgrade Apple shares due to its weak iPhone sales performance
Andy Hargreaves, KeyBanc Capital Markets analyst, lowered his for Apple shares to sector weight from overweight. Hargreaves does not have a price target but says that $178 is a “fair value.”
"Soft iPhone sell-through suggests a saturated market and the lack of gross margin upside reduces our view of potential profit growth," Hargreaves wrote in a note, "This reduces our view of potential upside in the stock and prompts the downgrade."
Bernstein reduced its rating for Apple to market perform from outperform due to the same reasons as KeyBanc. BMO Capital Markets has also given the same downgrade.
Sacconaghi lowered his price target for Apple to $170 from $195.
Apple shares are underperforming with the market as share are down 3.34 percent year to date now.