Reading Between the Lines of Apple’s 2Q24 Earnings Q&A With Analysts

Hello everyone. This is shaping up to be a busy week. We still have a good amount to discuss when it comes to Apple’s 2Q24 earnings. There is then an Apple product event (online) on Tuesday at 10 am ET. Let’s jump into today’s update.

Reading Between the Lines of Apple’s 2Q24 Earnings Q&A With Analysts

After recapping each question-and-answer exchange that occurred on the call between Apple and sell-side analysts, we will go over my response to the exchange. Let’s go beyond what was talked about on the call with the 10th installment of reading between the lines of Apple's earnings Q&A with analysts.

NOTE: The following earnings call questions (“Q (Sell-Side Firm)”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, Seeking Alpha offers a written transcript here.

3Q24 Guidance

Q (Goldman Sachs): What gives you confidence that revenue will grow in 3Q24 (the June quarter)?
Luca: Our guidance commentary will be limited to my prepared remarks: Overall revenue will be up “low-single-digits,” Services growing “double-digits at a rate that is similar to what we’ve done in the first half of our fiscal year,” and iPad up double-digits.

My response: With Services representing ~30% of 3Q24 revenue, growth of approximately 15% will go a long way to offset weakness in HW.

Q (Citi): What are you assuming for commodity pricing on memory in guidance?
Luca: Our guidance assumes memory and FX to be slight headwinds. FX will have a 30 basis point negative impact sequentially.

My response:

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Key Takeaways From Apple’s 2Q24 Earnings

Hello everyone. Welcome to a special Friday edition of the Above Avalon Daily. We will begin analyzing Apple’s 2Q24 earnings. There is a lot to unpack. The earnings review will take place across a few updates.
 
Key Takeaways From Apple’s 2Q24 Earnings

Heading into 2Q24 earnings, the expectations bar facing Apple had been set low. The company easily jumped over the hurdle. Both revenue and EPS beat consensus with revenue trending flat when excluding a one-time COVID impact. Gross margins are trending at levels that the company has not seen in over a decade. Apple provided 3Q24 guidance that suggested revenue growth will return. Everything is on track for FY24 to be something of a rebound year for Apple on the financial front. Under the hood, the Apple ecosystem continues to quietly expand as new users enter the fold and existing users move deeper into the ecosystem.

The Numbers

Here are Apple’s reported 2Q24 results versus my expectations with brief commentary for each item.

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My 2Q24 Apple Estimates, Expectations for Apple's 3Q24 Guidance, My Updated Apple Earnings Model


Happy Wednesday. One quick thing before we get to the second half of my earnings preview.

Financial Models Add-on. As a reminder, members now have access to my iPhone, iPad, and Apple Watch installed base models with the Financial Models add-on. These models make it possible to estimate device unit sales, the number of devices in the wild over time, product upgrade cycle length, percent of device sales going to new users versus existing users by year and more. For those of you who purchased the Financial Models add-on, all installed base models have been updated ahead of earnings. You can access the models at any time by logging into your Above Avalon membership account here and going to the Digital Package tab (shown below). My earnings model has also been uploaded so that it will always be available in the same tab for easy access.

 
 

The Financial Models add-on is designed to be a perfect companion for AAPL investors wanting to take a deep dive into Apple’s financials as well as Apple competitors and suppliers needing to better understand the marketplace dynamic. For pricing information and to purchase the add-on, check out this page.


My 2Q24 Apple Estimates 

Here are my granular estimates for Apple’s 2Q24:

  • Revenue: $91.9B (consensus: $90.0B)

  • Overall gross margin: 46.9% (guidance: 46% to 47%)

  • Gross margin (HW): 37.4%

  • Gross margin (Services): 74.6%

  • EPS: $1.59 (consensus: $1.50)

  • iPhone revenue:

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Setting the Stage for Apple’s 2Q24 Earnings, Thoughts on Apple’s Stock Price Underperformance

Hello everyone. Happy last day of April. We will begin preparing for Apple earnings. Today’s discussion will look at the big picture ahead of Thursday’s earnings release. We will go over my granular estimates on Wednesday.
 
Setting the Stage for Apple’s 2Q24 Earnings

Heading into Thursday’s earnings, the setup looks positive for Apple. Expectations surrounding Apple are at a multi-year low while business fundamentals appear to be holding up OK. This lowers the bar for what Apple needs to report and say on Thursday to please analysts and company observers. While a slowdown in device upgrading and sales weakness at the low end of various product lines continue to weigh on Apple’s

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Alphabet 1Q24 Earnings, Pichai (Sort Of) Hints at Apple / Gemini Rumors, Google Announces HW Reorganization

Hello everyone.

Apple reports earnings on Thursday. We will begin my earnings preview on Tuesday. With Apple being in the bottom 12% of performing stocks in the S&P 500 year to date, we have quite a bit to talk about. In today's update, we will look at Alphabet's earnings.
 
Alphabet 1Q24 Earnings

Last Thursday, Alphabet reported 1Q24 earnings. It was a good quarter for the company. Revenue was 15% to $81B while operating margin jumped to 32% (from 25% last year). Free cash flow was a solid $17B (unchanged from last year). Google TAC was up 11% which bodes well for Apple's Services revenue line item.

Alphabet has a few major trends on its side.

Like how Apple has long been criticized by some for being too dependent on the iPhone for revenue, Alphabet has been looked down by many as being too dependent on search for revenue. In the early months of AI mania, there was skepticism that Google would be able to continue printing money from search. A clear explanation as to how generative AI would disrupt Google search was rarely given. Instead, much of the analysis was superficial in that users were basically said to no longer need questions answered via a search portal. Given some of the crazy prognostications, my stance that Google Search’s sustainability was

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Meta 1Q24 Earnings, About Meta’s “AI-Recommendation” System, Meta’s HW Sales

Hello everyone. Today's update will be dedicated to discussing Meta's earnings. Let's jump right in.
 

Meta 1Q24 Earnings

Meta’s 1Q24 earnings release was a tale of the conference call. Actual results found in the release were what we have come to expect from the company. Meta’s advertising machine found its feet in 2023 after a shaky period involving macro headwinds and renewed competitive pressure. Revenue was up 27% with operating income up 91%.

While we can take issue with some of the inner workings of that advertising machine when it comes to AI - which we will discuss shortly – there is no debate that Meta's monetization struggles of 2022 and early 2023 have dissipated.

Management's 2Q24 guidance is pointing

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Apple Announces May Product Event, Apple Vision Pro Sales Noise, A Few Suggestions for Apple

Hello everyone. We will begin today’s update with some words on Apple’s upcoming product event. The discussion will then turn to Apple Vision Pro.

Apple Announces May Product Event

Yesterday, Apple sent out invites to a product event taking place virtually on May 7th.

 
 

Based on the event invite artwork, it’s safe to say we are going to see a new Apple Pencil and some iPad updates. Rumors point to Apple updating the iPad Pro and iPad Air segments of the iPad line.

Tim Cook’s tweet about the event hints at an Apple Pencil update.

 
 


Last October, Apple unveiled an Apple Pencil with a USB-C charging port which had fewer features than the Apple Pencil (2nd gen). Apple didn’t call the new pencil Apple Pencil (3rd gen). Instead, it’s Apple Pencil (USB-C). This would suggest that we may see a true 3rd gen Apple Pencil next month. For much more on Apple Pencil strategy, check out the October 17th update where we take a deep dive into all things Apple Pencil.

Taking a step back, expectations for this

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Meta Unveils “Open” Mixed Reality Ecosystem, Zuckerberg’s Motivation, Getting Out Ahead of Android XR

The news continues to flow. Today’s update will be focused on the big development from Meta in mixed reality land. Let’s jump right in.

Meta Unveils “Open” Mixed Reality Ecosystem

In a blog post published yesterday, here’s Meta:

“Today, we’re taking a major step toward our vision for a more open computing platform for the metaverse. We’re opening up the operating system that powers our Meta Quest devices to third-party hardware makers, giving developers a larger ecosystem to build for and ultimately creating more choice for consumers. This platform is the product of a decade of investment into the underlying technologies that enable mixed reality, and opening it up means a lot more people will benefit from that investment. We’re working with leading global technology companies to create a new ecosystem of mixed reality devices, and we’re making it even easier for developers to build mixed reality apps.

We believe a more open ecosystem is the best way to bring the power of mixed reality to as many people as possible. With more devices, this new ecosystem will offer more choice to consumers and businesses around the world. Developers will have a much larger range of hardware that can run their apps, and more device makers will expand their market to a wider range of users, much like we’ve seen with PCs and smartphones.”

Meta will be rebranding its mixed reality OS, which is built on top of Android, to Meta Horizon OS from Quest OS.

That unofficial Meta “leak” to the WSJ a few months back when Meta employees talked of wanting to be the Android to Apple Vision Pro makes a lot more sense now. It was difficult to associate a platform where one company handled both hardware and software as being the new Android of anything.

The “leading global technology companies” that Meta announced partnerships with include:

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Netflix 1Q24 Earnings, Netflix to Stop Disclosing Subscriber Data, Key Paid Video Streaming Metrics

Welcome to a new week.

It’s hard to believe, but we are beginning another earnings season. Netflix reported earnings last week. Heading into this tech earnings cycle, there’s angst in the air. Many companies have seen very strong stock price performances to date – Apple and Tesla being the exceptions – while macro issues are once again grabbing headlines. 

Let’s jump right in with Netflix earnings.

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iPhone Sales Angst Continues, Sales on Apple Products Spread, Tesla Announces 10% Layoff

We kick things off with my thought’s on iPhone sales trends in the first three months of 2024. The discussion then turns to more retailers running with surprisingly large discounts on Apple products. We conclude with Tesla layoffs.

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Tesla Reportedly Cancels Inexpensive Car Project, Tesla’s Master Plan, Part Deux, Friday Q&A

We kick things off with my thought’s on Reuters’ article regarding Tesla cancelling its Model 2 project. The discussion then revisits Elon Musk’s revised master plan for Tesla from the mid-2010s. The update concludes with a Friday Q&A and the following questions:

  • Were Project Titan’s cancellation and the in-house microLED displays team disbandment driven by cost-cutting motives as revenue stagnates?

  • Why can’t Apple build a battery-powered HomePod or HomePod mini for portable use cases?

  • Do you think it will take years for Apple Vision Pro to become a meaningful contribution to Apple’s revenue story?

  • Why didn’t Apple launch Apple Vision Pro with a larger catalog of Apple Immersive Video films?

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Revisiting iPhone Manufacturing In India, U.S. Announces TSMC Subsidy, Samsung to Receive U.S. Subsidy

Hello everyone. Today’s update has an Apple manufacturing / supply chain apparatus theme. We begin with my thoughts on some new reporting regarding iPhone manufacturing and assembly in India. There are a few underlying themes found with the iPhone manufacturing in India story. The update then turns to TSMC and Samsung receiving U.S. subsidies under the U.S. CHIPS and Science Act.

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Apple Talks up Vision Pro at Work, Apple Announces Enterprise Spatial Design Lab, Inside Apple Vision Pro

In today’s update, we take a closer look at Apple’s attempt to draw attention to Vision Pro in business settings. The discussion turns to Apple announcing a new Enterprise Spatial Design Lab. We conclude with Lumafield publishing one of the more interesting “teardowns” of an Apple product.

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Apple Reportedly Partnering With Shutterstock for AI Model Training, Shutterstock’s Attractiveness, Apple Adds More Licensed Movies to Apple TV+

In today’s update, we go over my thoughts on the Reuters story regarding the how and why everyone in Big Tech is running to established content (photo) providers for ML and AI model training. The discussion then turns specifically to Shutterstock. We conclude with a few new observations regarding more licensed movies being available on Apple TV+.

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Tesla 1Q24 Deliveries, What’s up With Tesla?, Ford Increases Bet on Hybrids, GM Shakes up Software Team

One member in the forum raised a good point regarding livestreaming Apple Immersive Video. Last year, Apple acquired WaveOne. We talked about the acquisition in the March 28th, 2023 update (available here). The company was in the business of AI algorithms for video compression. The takeaway from that acquisition wasn’t specific to livestreaming sports but rather the broader trend of consuming video and your surroundings on spatial computers.

Today’s update will be dedicated to the auto space.

A few quick notes regarding how we will approach the auto industry following Apple halting Project Titan. In summary, there won’t be any major issues to coverage.

  1. It is good to keep abreast of what’s unfolding in the car industry as the market is too large for Apple to ignore. While the ingredients may not be in ripe for Apple’s entry over the next few years, we can’t rule out the company having renewed interest down the road.

  2. Apple’s CarPlay initiative is one of the more promising integrations between first-party hardware and non-Apple hardware. There are plenty of related implications worth monitoring including Apple Services’ role on the road (maps, music, etc.). It is good to stay up to date as to how CarPlay is being embraced via vehicles sales trends etc.

Let’s jump into today’s update.

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Apple Releases "2023 MLS Cup Highlights" for Vision Pro, A Breathtaking Moment for Vision Pro, Apple Immersive Video Questions

Hello everyone. It feels good to be back after a long weekend. We will get back into the swing of things by discussing one thing that captured my attention in recent days: Apple releasing a new immersive film for Apple Vision Pro.

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U.S. Justice Department Turned to European Commission for Help in Apple Battle, Apple Will Seek U.S. Antitrust Complaint Dismissal, The Big Picture

In today’s update, we will tackle a few tangential topics related to the Justice Department’s antitrust complaint against Apple.

As for the complaint itself, the past two updates covered most of what needed to be said. There were additional examples of completely absurd statements and tales told by the Justice Department that we won't go over. In the grand scheme of things, our time and attention are better spent elsewhere.

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U.S. Justice Department Sues Apple on iPhone Monopoly Allegation (My Thoughts and Reactions – Part 2)

In today’s update, we will continue our discussion from yesterday regarding the U.S. Justice Department’s antitrust complaint against Apple. We will focus on the specific allegations included in the complaint (available here).

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U.S. Justice Department Sues Apple on iPhone Monopoly Allegation (My Thoughts and Reactions – Part 1)

Hello everyone. We will begin to discuss and analyze the U.S. Justice Department's antitrust complaint against Apple. The full 88-page document is available here. For today’s update, we will keep the discussion focused on my overall thoughts and reactions. We will take a deeper look at some of the specific arguments put forth in the complaint tomorrow.

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Thoughts on CNBC’s ESPN Documentary, Bob Chapek Breaks Silence, Big Tech’s True Interest in Live Sports

Hello everyone.

Earlier today, the U.S. Department of Justice's long-awaited antitrust complaint against Apple, which has been re-worked numerous times over the years, was released. Apple is accused of possessing an iPhone monopoly in the U.S. smartphone market. I will go through the document in the coming days so that we can begin talking about things on Monday. The full 88-page document can be found here.

For today's update, we cover a news item that jumped out at me earlier today involving ESPN, Big Tech, and live sports.

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