Apple reported a 10% rise in third-quarter revenue to $94.0bn ($89.5bn expected). Operating profit rose 11% to $28.2bn.
There was growth across both the Product and Services businesses, with iPhone sales up 13.5% to $44.6bn. On a regional basis, all areas saw higher sales, including a return to growth in China.
In the first 9 months, free cash flow fell from $84.9bn to $72.3bn. Net cash, including longer term securities, stood at $31.3bn.
Apple declared a dividend of $0.26 per share and has bought back $70.6bn worth of stock over the past 9 months.
In the third quarter, Apple expects mid to high single digit revenue growth, with tariffs to be a $1.1bn cost headwind ($900mn headwind in Q2).
The shares rose 2.2% in after-hours trading.
Our view
Apple is caught in a sentiment trap. On paper, this was one of its strongest sets of results in recent years - robust iPhone sales, a return to growth in China, and encouraging guidance. Ordinarily, that should have sent shares meaningfully higher. But the muted reaction reflects ongoing uncertainty around the AI narrative and tariff impact.
iPhone sales were very strong, and the return to growth in China was good to see. There is a slight question around how much of a pull forward in demand there was from buyers looking to get in ahead of tariffs. But management played down any major impact and guidance looks to reflect that – painting an encouraging picture.
Still, we aren’t quite on board with the narrative that a massive spike in iPhone sales growth is coming. The lack of real innovation in recent years needs addressing. Gone are the days when each new iPhone was so packed with new features that consumers felt obligated to upgrade every year.
AI offers a solution on paper, but Apple hasn’t been able to adapt quick enough. Apple Intelligence is a country mile from the ‘wow’ experience that was promised. Hopes are now tied to an AI-powered Siri and while Apple has time to get this right, it needs to make progress sooner rather than later.
Services growth is likely to remain a key profit driver going forward, including areas like the App Store and Apple Music. This part of the business is higher margin, as adding users doesn’t carry the same costs as building a MacBook or iPhone. But for Services to reach its full potential, it still depends on growing hardware sales.
There is a risk to call out here too. Alphabet (Google parent company) pays Apple in the order of $15-20bn a year to have Google as the default search engine on Apple devices. Regulators are looking into this, and there is a risk that this agreement is forced to come to an end, clearly a big financial mover for Apple.
All in, Apple’s brand is so strong that it’s well placed to navigate the uncertainty ahead. iPhone sales are key, and demand looks to be robust despite a lack of value add from AI, which bodes well if it can get turn the AI tide. That said, we think the valuation looks about right given the challenges ahead, and there are no guarantees.
Environmental, social and governance (ESG) risk
The technology industry is low-risk in terms of ESG, though some segments like Electronic Components are more exposed to environmental risks. Business ethics tends to be a material risk within the tech sector with everything from anti-competitive practices to intellectual property rights weighing. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Apple’s management of ESG risk is average.
Apple is facing legal pressure on multiple fronts, with lawsuits and investigations over antitrust practices tied to the App Store, Apple Pay, and developer restrictions - leading to billions in fines across the EU, UK, and US, while prompting policy changes like lowering fees and allowing third-party app stores in Europe.
Apple key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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
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