Apple Surpasses Q1 Earnings Estimates Setting a New Record With $111 billion in Revenue

Apple announced financial results for its fiscal 2021 first quarter ended December 26, 2020. Analysts have talked for at least a year about the potential for Apple’s first 5G iPhone to drive a “supercycle” of device sales. On Wednesday, Apple’s earnings report for the three months ended December 26 — the first since the iPhone 12 went on sale — offered an initial look at how actual sales are stacking up against that projection.

Initially, this means this is the first time we’re getting a real indication of how the new iPhone 12, iPhone 12 mini, iPhone 12 Pro, and iPhone 12 Pro Max are faring with consumers and it turns out, Apple is doing very well, despite the global pandemic disruptions, as they crossed $100 billion in quarterly revenue for the first time in the company’s history. 

The latest iPhones went on sale a bit later than normal, and Apple has had to again close some of its retail locations due to the COVID-19 pandemic. But despite those obstacles, the iPhone business did extraordinarily well, tallying over $65 billion in revenue. The previous all-time record for iPhone revenue in a quarter was $61.58 billion, which Apple hit in the first quarter of fiscal 2018.

The Company posted all-time record revenue of $111.4 billion, up 21 percent year over year, heavily driven by strong iPhone sales — well above the $103.3 billion Wall Street analysts had predicted, and quarterly earnings per diluted share of $1.68, up 35 percent from the same period in the prior year. International sales accounted for 64 percent of the quarter’s revenue.

Here are the key numbers to watch from Apple’s Q1 earnings:

• Q1 2021 revenue: $111.4 billion. Analysts were expecting $103.3 billion.
• Q1 2021 earnings per share (EPS): $1.68, versus Wall Street estimates of $1.41.
• iPhone revenue: $65.6 billion. Analysts were expecting $60.33 billion. iPhone revenue was $55.96 billion in Q1 2020.
• Services Revenue: $15.76 billion, versus analyst estimates of $14.89 billion.
• Products revenue: $95.68 billion. Analysts were expecting $88.2 billion. 
• Wearables Revenue: $12.97 billion versus analysts’ estimates of $11.84 billion.

“This quarter for Apple wouldn’t have been possible without the tireless and innovative work of every Apple team member worldwide,” said Tim Cook, Apple’s CEO. “We’re gratified by the enthusiastic customer response to the unmatched line of cutting-edge products that we delivered across a historic holiday season. We are also focused on how we can help the communities we’re a part of build back strongly and equitably, through efforts like our Racial Equity and Justice Initiative as well as our multi-year commitment to invest $350 billion throughout the United States.”

“Our December quarter business performance was fueled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO. “These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time.”

iPhone sales were also even better than expected: Growing more than 17% year-over-year to nearly $65.6 billion, compared with the $59.8 billion analysts had expected. Apple executives last quarter had said they expected single-digit percentage growth in iPhone sales during the December quarter.

“All signs point to a strong launch quarter for the iPhone 12,” Morgan Stanley analysts wrote in a note to investors ahead of the report. “In our view, the iPhone 12 has been Apple’s most successful product launch in the last five years.”

The company’s stock fell less than 1% in after-hours trading Wednesday. The Wednesday earnings report comes as Apple’s stock has largely continued to soar in recent weeks. Its market cap this week reached an all-time record above $2.4 trillion.

Why so much pressure on the iPhone 12?

Hopes have been high for the iPhone 12 because it’s the first Apple device that can connect to 5G, the superfast wireless networks expected to create new capabilities for consumers and businesses. The past several iPhone releases “haven’t really given users a reason to upgrade,” Tyler Ellegard, investment analyst at Gradient Investments, said in an interview ahead of the results. That led to disappointing iPhone sales numbers in recent years.

With the iPhone 12, experts predicted 5G connectivity could be a big enough change to encourage hundreds of millions of Apple users to upgrade. The fast download speeds and low lag time that 5G enables could make for a better experience using Apple services such as Apple Arcade.

However, there were also major questions surrounding the iPhone 12 launch: Will people really shell out for an upgrade during the economic recession caused by the pandemic? And with 5G networks still in their early days, would consumers experience enough of a difference to even want to?

D.A. Davidson Analyst Tom Forte said in a note last week that he believed Apple’s lineup of 5G smartphones was “better positioned than investors completely appreciate,” in part because of carrier promotions. Some of the iPhone sales growth may not be because of 5G, but simply because consumers who hadn’t upgraded in a few years wanted other perks, such as the iPhone 12’s impressive array of camera features, Ellegard said.

What else will analysts be watching?

The iPhone wasn’t the only big Apple product to go on sale in recent months. The company also released the eighth-generation iPad and a redesigned iPad Air, the Apple Watch Series 6 with new watch faces and health monitoring features and a new Mac lineup powered by chips designed in-house. Apple’s overall product sales during the quarter totaled nearly $95.7 billion.

But analysts will likely pay special attention to how Apple’s services segment performance — revenue from the business grew 24% to nearly $15.8 billion. Although iPhones remain the company’s biggest revenue driver, it has been increasingly working to become more of a services business. Apple’s fitness subscription offering, Fitness+, launched during the quarter. And the ongoing pandemic and continued stay-at-home orders may have boosted subscription growth for Apple TV+.

The persistent growth of Apple’s stock likely has much to do with the services business, Gradient’s Ellegard said. “People are changing how they value the company,” he said. “It’s easier to forecast future sales when you have the recurring subscriptions, and it’s also a higher margin business. It’s a better business model, to be honest.”

Apple executives could also provide insight into what they’re thinking about the new administration’s potential impact on their business during Wednesday’s earnings call. Although early Biden moves such as overturning Trump’s travel ban were likely welcomed by Silicon Valley, Big Tech continues to face major challenges in Washington DC.