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Apple (AAPL) Q3 Earnings Beat, iPhone Strength Aids Top Line

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Apple (AAPL - Free Report) reported third-quarter fiscal 2021 earnings of $1.30 per share that beat the Zacks Consensus Estimate by 30% and jumped 100% year over year.

Net sales increased 36.4% year over year to $81.43 billion, which surpassed the Zacks Consensus Estimate by 11.3%.

iPhone and Services maintained momentum in the reported quarter. iPhone sales increased 49.8% from the year-ago quarter to $39.57 billion and accounted for 48.6% of total sales. iPhone sales were driven by strong demand for the iPhone 12 family of devices.

Services revenues grew 33% from the year-ago quarter to $17.49 billion and accounted for 21.5% of sales.

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote


Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle contributed to overall growth. These new services continue to add users, content and features.

Apple now has more than 700 million paid subscribers across its Services portfolio, up 40 million sequentially and 150 million year over year.

Strong China & Europe Aid Top Line

Americas sales increased 32.8% year over year to $35.87 billion and accounted for 44% of total sales.

Europe generated $18.94 billion in sales, up 33.7% on a year-over-year basis. The region accounted for 23.3% of total sales.

Greater China sales surged 58.2% from the year-ago quarter to $14.76 billion, accounting for 18.1% of total sales.

Japan sales soared 30.2% year over year to $6.46 billion, accounting for 7.9% of total sales.

Rest of the Asia Pacific generated sales of $5.40 billion, up 28.5% year over year. The region accounted for 6.6% of total sales.

Top-Line Details

Product sales (78.5% of sales) surged 37.4% year over year to $63.95 billion. Non-iPhone revenues (iPad, Mac and Wearables) grew 21.2% on a combined basis.

iPad sales of $7.37 billion climbed 11.9% year over year and accounted for 9% of total sales.

Mac sales of $8.24 billion increased 16.3% from the year-ago quarter and accounted for 10.1% of total sales.

Wearables, Home and Accessories sales increased 36% year over year to $8.78 billion and accounted for 10.8% of total sales.

Apple Watch’s adoption rate continues to grow rapidly. More than 75% of customers who purchased Apple Watch during the reported quarter were first-time customers.

Operating Details

Gross margin expanded 530 basis points (bps) on a year-over-year basis to 43.3%. Moreover, gross margin increased 80 bps sequentially, driven by cost savings and higher mix of services.

Products’ gross margin contracted 10 bps sequentially to 36%. Services’ gross margin was 69.8%, down 30 bps sequentially.

Operating expenses rose 16.1% year over year to $11.13 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 20.2% and 12%, respectively.

Operating margin expanded 770 bps on a year-over-year basis to 29.6%.

Balance Sheet

As of Jun 26, 2021, cash & marketable securities were $193.64 billion compared with $204.37 billion as of Mar 27, 2021.

Term debt, as of Jun 26, 2021, was $113.79 billion, up from $116.65 billion as of Mar 27, 2021.

Apple returned $29 billion in the reported quarter through dividend payouts ($3.8 billion) and share repurchases ($17.5 billion).


Apple did not provide revenue guidance for the fourth quarter of fiscal 2021, given the uncertainty around the impact of the coronavirus pandemic. However, management expects revenues to grow double digits year over year in the September quarter, but to be lower than June quarter’s revenue growth rate. This is due to negative impact from foreign exchange, normal growth in the Services segment and supply constraints (iPhone and iPad).

Gross margin is expected between 41.5% and 42.5% in the fourth quarter. Operating expenses are expected between $11.3 billion and $11.5 billion.

Zacks Rank & Stocks to Consider

Currently, Apple has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are CyberArk Software (CYBR - Free Report) , Bruker (BRKR - Free Report) and Carrier Global (CARR - Free Report) . While CyberArk sports a Zacks Rank #1 (Strong Buy), both Bruker and Carrier Global carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Carrier Global is set to report its quarterly earnings on Jul 29. Bruker and CyberArk are scheduled to report the same on Aug 2 and 12, respectively.

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