Apple shares jump 7.6% on word of robust March quarter

But Apple provides weak guidance for the June quarter

Apple shares were up 7.6% to $564.87 at the open Thursday morning following the company’s surprisingly robust March quarter earnings report Wednesday evening.

While many analysts were expecting another weak quarter, Apple surprised with $45.6 billion in revenue with a net profit of $10.2 billion, or $11.62 per share. That’s compared to $10.09 per share on revenue of $43.6 billion in the same quarter last year. Meanwhile, analysts were expecting a rather flat quarter of $10.18 per share on revenue of $43.5 billion.

Even bigger news: for the first time in six quarters, Apple actually grew its gross margin, reaching 39.3% compared to 37.5% in the year-ago quarter. As Tim Cook noted during the company’s earnings call, that’s the best gross margin percentage Apple has seen since September 2012.

The company announced a 7-for-1 stock split.

Despite those great numbers, Apple provided weak guidance for the June quarter: just $36-$38 billion, which is 3% below consensus, with gross margins of 37%-38%.

“We believe that AAPL has the ability to outpace expectations by tapping the $63bn sub $1,000 laptop market with iAnywhere as well as new products like the iPhone 6 and iWatch,” wrote J.P. Morgan analyst Rod Hall, in a research note.

J.P. Morgan previously floated the theory of “iAnywhere,” a Windows 8-like converged OS that would let you use your iPhone like a PC.

In addition to new products like the iPhone 6, iWatch, and iAnywhere, Hall noted that Apple can generate more revenue by optimizing user monetization.

“Tim Cook indicated that Apple has just under 800m iTunes account holders – most of whom have provided credit card information. However, dividing Apple’s reported iTunes/Services/Software revenue of $4,583m by 800m yields only $5.7/account/quarter or about $23/year. We see this as a weak number considering Apple’s brand strength and loyal user base,” wrote Hall.

The company sold 43.7 million iPhones, which accounted for $26 billion in revenue. Compare that to J.P. Morgan’s estimate of 37.2 million iPhones sold in the March quarter.

That said, iPad sales came up light: just 16.4 million units, which came in below analyst expectations. J.P. Morgan’s Rod Hall was anticipating 22.4 million units sold. Tim Cook said in the call that the discrepancy between the number of iPads Apple sold and Wall Street’s expectations can be explained by channel inventory changes. In the March quarter of last year, Apple increased its channel inventory of iPads, but it decreased channel inventory this March quarter. And while the company ended the September quarter with a backlog, it ended the December quarter near supply balance. Ultimately, noted incoming CFO Luca Maestri, the company sold through 17.5 million units, and the year-over-year sell-through decline was only 3%.

During the call, Tim Cook revealed that the iPhone now has a 55% market share in Japan, and over half of the people who registered iPhones in the March quarter were new to iPhone.

At one point during the call, Morgan Stanley’s Katy Huberty asked Cook whether Apple would be able to keep the same price point for iPhones while continuing to innovate—hinting at concerns many have that if Apple does indeed produce an iPhone (or two) with a bigger screen, the increased bill of materials (of which screen size is estimated to account for 25%) will necessitate a higher price point. Either that, or Apple will have to eat the costs itself, which will drive down gross margins.

Tim Cook answered with a very tight-lipped, “we price things in such a way that we believe it’s a fair price for the value we deliver.” Dammit, Cook!

Some other interesting March quarter highlights: Apple sold 4.1 million Macs and 2.8 million iPods.

Tim Cook noted that iPad users in the U.S. generate four times the Web traffic of all Android users combined. Additionally, two-thirds of people planning to purchase a tablet in the next 90 days plan to purchase an iPad.

Apple acquired 24 companies in the last 18 months.

Additionally, as we all know, CFO Peter Oppenheimer is retiring after ten years on the job. As Cook pointed out in the call, Oppenheimer has never missed guidance in his entire ten years with Apple, “which must be an all-time record for CFOs.” 

Image source: sproutsnsquats.com