( Apple AAPL Quick Quote AAPL - Free Report) released its Q1 FY23 earnings on Thursday evening. Apple’s earnings and revenue both missed analyst expectations, citing a strong dollar, production issues in China and the macroeconomic environment hinderances to its various businesses. The initial reaction during the after-market trading session was a -4% selloff, although the stock made a strong recovery during the Friday session erasing the losses, and rallying +2.5% on the day. Earnings: $1.88 vs. $1.94 estimated, down -10.9% year over year Revenue: $117.15 billion vs. $121.10 billion estimated, down -5.49% year over year iPhone revenue: $65.78 billion vs. $68.29 billion estimated, down -8.17% year over year Mac revenue: $7.74 billion vs. $9.63 billion estimated, down -28.66% year over year iPad revenue: $9.4 billion vs. $7.76 billion estimated, up 29.66% year over year Services revenue: $20.77 billion vs. $20.67 billion estimated, up 6.4% year over year No guidance provided from Apple management With a disappointing quarter and a lack of guidance, investors might be wondering if it is just a strong market pulling AAPL stock higher or are traders seeing something in the data that justifies the climb. Earnings Breakdown If earnings and revenue missed why might AAPL stock still be rallying? One bright spot in the report was Apple Services revenue. Services, which include Apple Music, TV, News, Card and others is quickly becoming a major contributors to the bottom line, and just in time. Services is a departure from Apple’s bread and butter in hardware, but provides a high margin, cash machine to diversify Apple’s income. Revenue from the iPad segment was another pleasant surprise for investors. All other hardware, including iPhones, and Mac saw YoY decreases, but iPad experienced a huge bump. iPad brought in $9.4 billion, which was a 30% YoY increase, and was partially attributed to the new cheaper iPad offered as a part of the product lineup. CEO Tim Cook was persistent on the call about the macro-level drag on Apple’s sales growth. It was clear in the report that iPhone sales were down, and holiday sales were also down 5%, but Cook said that iPhone 14 supply was significantly reduced because of factory closures in China. Another big highlight from Cook was the reveal of total active Apple devices figures. Apple now has 2 billion active devices, which includes everything from iPhones, to iPads, and Mac computers. Still, with all those positives, it’s hard to ignore that Apple’s Q1 revenues were down -5.5% YoY. Additionally, the EPS miss was the first since 2016, and the revenue miss was just the second since 2016. Image Source: Zacks Investment Research Looking Ahead The future still looks good for Apple as Zacks have FY24 estimates looking up. Consensus estimates for FY24 have sales growing 5.6%, bringing revenue to $425 billion. Earnings are expected to be $6.68 per share, up 8.7% YoY. This robustness in growth must be playing a role in Apple’s strong response to this report. Even though Apple had a tough quarter, the future is still bright. Additionally, Apple’s growth over the past two years has been phenomenal, especially impressive because of its mammoth size. Annual sales have grown from $274 billion in 2020 to nearly $400 billion in 2022. This should appease any investors doubting Apple. Image Source: Zacks Investment Research Valuation Apple is currently trading at a one year forward P/E of 23.8x, just above its 5-year median of 22.3x, and above the S&P’s 19x. As challenged as these earnings were, a slight premium above the market seems like a very fair valuation for the world’s largest public company. Apple has cash and marketable securities of $165 billion, down from the prior quarter of $169 billion, and debt of $109 billion, down from $110 billion the previous quarter. Apple returned $25 billion during the quarter through dividend payouts ($3.8 billion), and share repurchases ($19 billion). Image Source: Zacks Investment Research Conclusion The rough quarter really stands out because of the bar Apple has set for itself. You must really be critical of the numbers to scrutinize how the business is going. That being said, a slowdown in growth speaks to how the consumer is faring. With more than 2 billion active devices, Apple products are how many people connect to the digital world, and seeing growth falter even a bit sends a strong message about the economy. Even in the case of a slowing economy, AAPL stock is practically as good as a treasury bond over the long run.