Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Apple - services revenue hits all-time high

Apple's first-quarter net sales rose 2.1% to $119.6bn, fuelled by growth in iPhone sales and Services...

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

Apple's first-quarter net sales rose 2.1% to $119.6bn, fuelled by growth in iPhone sales and Services revenue reaching an all-time record. This more than offset declines in iPad and Wearables, while Mac sales remained broadly flat. All regions except China saw growth.

Operating profit grew ahead of revenue, up 12.1% to $40.4bn, as costs were closely controlled. The group's Services revenue is typically higher margin than its other sales, which also contributed to the uplift.

Apple's free cash flow improved from $30.2bn to $37.5bn, and it had a net debt of $32.9bn at the end of the quarter.

The group returned almost $27.0bn to shareholders in the first quarter. A dividend of $0.24 per share has been announced

The shares fell 2.9% in after-hours trading.

View the latest Apple share price and how to deal

Our view

Apple's first-quarter revenue came in comfortably ahead of market expectations. The return to top-line growth breaks a streak of four straight quarters of annual revenue declines.

Recently we've been wary of consumer demand against the uncertain economic backdrop. Upgrading your phone to the latest model tends to take a back seat when times are tough. That's why it was pleasing to see strong growth in iPhone sales, which were well ahead of analyst estimates. But while the new iPhone 15 has performed well, other hardware items haven't.

Another note of caution stems from competition in China. Other big names like Huawei are taking Apple head-on, and taking some local revenue in the process. Some competitors have an even larger installed product base and offer better prices. If Apple's brand ever slips - like we've seen with some heavily branded clothes - the shine would very quickly rust on that famous tiny apple.

This isn't an overt concern right now, but it is something to monitor.

We're encouraged by progress in Services - things like the Appstore and Apple Music. This area of the business is higher margin because adding new users doesn't involve the same costs as building a MacBook or iPhone. But for Services to reach its full potential, it relies on growing hardware sales occurring in the first place. To that end, we'd like to see some of Apple's other hardware pick up the pace. How well the new Vision Pro headset is received will be a key driver of near-term sentiment. If it lands well, it could open the door to another meaningful and long-lasting source of revenue.

While there are some extra risks to be considered, Apple's biggest asset remains its brand. The sheer scale of Apple's sales is testament to the grip that the shiny embossed piece of fruit has on global consumers. The loyal customer base means that there's an element of revenue visibility other businesses simply don't have.

We're also mindful that Apple's valuation has reached slightly more palatable levels, and doesn't necessarily reflect the potential future strength, especially from Services. Despite this, the valuation is still elevated compared to the ten-year average, which does increase sensitivity amid the uncertain consumer backdrop. The group generates significant free cash flow, which we don't see as under threat.

Overall, we think Apple remains strong, but future spoils still rely on growing higher-margin areas of the Service business, while creating another generation of coveted products. We continue to have faith in Apple's ability to deliver, but competition concerns in the important Asia region have become slightly more prominent and this can increase the risks of ups and downs.

Environmental, social and governance (ESG) risk

The technology sector is generally low-risk in terms of ESG, but some segments like Electronic Components can be more exposed to environmental risks. Regulatory interest in the sector has picked up recently, leading to more acute business ethics risks. Other key risks include labour relations, data privacy and product governance.

According to Sustainalytics, Apple's overall ESG management is strong. Apple's huge scale means its primary ESG risk relates to business ethics. The group's market dominance exposes it to growing regulatory risks. Apple has strong management of Governance risks, including board structure and shareholder rights.

Apple key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 2nd February 2024