In this segment from Motley Fool Money, host Chris Hill, Million Dollar Portfolio's Jason Moser, Total Income's Ron Gross, and Supernova and Rule Breakers' David Kretzmann break down the impressive quarter recently turned in by Apple (NASDAQ: AAPL).
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Services revenue grew by 22%, iPad sales grew by 15%, and the company sold 41 million iPhones. The question, as always, is where does the tech titan go from here, with rivals like Alphabet, Facebook, and Amazon taking aim at its market share, and with a new iPhone model due to debut in the coming months?
A full transcript follows the video.
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This video was recorded on Aug. 4, 2017.
Chris Hill: We begin with the biggest company in the public markets. Apple's third-quarter revenue came in north of $45 billion, and I know they're all about the iPhone, David, but Apple is doing a good job of growing that services division.
David Kretzmann: Yeah, services grew 22% to a record $7.3 billion for the quarter, but this really is still the iPhone story. They sold 41 million iPhones this quarter. The iPad is also finally making a comeback, it was up 15% this quarter. They launched the iPhone 10 years ago, around the anniversary year, and they've sold a cumulative 1.2 billion iPhones over that time. So, that installed base just continues to grow. They did see some currency headwinds in Europe and China, but like you mentioned, Chris, the bright spot really is that services business. The App Store brings in twice the revenue of Google Play. They have 185 million paid subscribers across all their different services -- Music, iCloud, the App Store, a lot of things like that services segment.
Jason Moser: Yeah. I like seeing the boost in iPad sales. For a long time, we've been wondering how far can that really go, and I think --
Ron Gross: Remember Baba Booey said it was a bit of a stumble?
Moser: [laughs] Yeah. Not quite a stumble, I would say, it's a multibillion-dollar stumble, and we would all kill to have one of those. But I do feel like, the TV is being redefined. Your TV is now either your phone or your tablet. So, certainly, they've been able to drive sales in delivering more variety and sizes of iPads, for example, I think that's helped. The iPad Pro is playing into a demographic there that uses it for professional services. But I do wonder if maybe the tablet, not the iPad in particular but just the tablet's best days are not behind us. It does seem like it's sort of a race to the bottom, and Amazon has gotten in there and introduced a tremendous line of Kindle Fires and whatnot, and now they have this Echo Show device, and we know that Facebook is going to be trying to make some sort of visual-based device like that as well. So it's nice to see this quarter. I'm not sure how sustainable that is. Is it going to really matter? No, because like David said, this is still really a phone company.
Gross: Remember the good old days of the iPhone subsidy, where you didn't feel like you were paying an arm and a leg? And now they're talking about the iPhone 8 being over $1,000? Did they address that at all in the call?
Kretzmann: Not a lot. Apple keeps the product launches close to the vest. It certainly seems like, with all the rumors and buzz around it, sometimes, September or October, we will see some new iPhone come out, whether it's called iPhone 8 or iPhone X remains to be seen. But I would guess a new iPhone is on the way this year.
Hill: It was interesting to see the headline particularly around the services, because going into this quarterly report, and this seems odd to say about a company this big, but there was a lot of talk on Wall Street of essentially just ignoring this quarter, because I think there's a lot of excitement about what will come this fall, and what will be the next iteration of the iPhone. So, nice to know they can still surprise people.
Kretzmann: The amazing thing about the services business is, right now, the quarterly revenue of the services business is really on par with what Facebook was bringing in in terms of revenue each quarter last year. And that's still just a fraction of Apple's total revenue.
Gross: And it's still not an expensive stock, in my opinion. It still remains relatively inexpensive compared to the rest of the market.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN. David Kretzmann owns shares of Alphabet GOOG, AMZN, and FB. Jason Moser owns shares of Apple. Ron Gross owns shares of GOOG, AMZN, Apple, and FB. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, Apple, and FB. The Motley Fool has a disclosure policy.