Apple rang up record quarterly results from — what else? — iPhone sales.
The company added that Apple Watch will start shipping in April.
Apple’s first-quarter revenue of $74.6 billion and earnings per share of $3.06 easily surpassed analyst estimates of $67.7 billion and $2.60 for the three-month period ended Dec. 31. Its profit was a record $18 billion.
Apple’s blow-out quarter surprised even analysts, who expected a whopper during the traditionally strong holiday shopping season, and sent the company’s stock soaring.
In extended trading, Apple shares were up 5%, to $114.74. (Apple announced its first-quarter results after the close of markets.) Meanwhile, the Dow plunged 291 points because of other weak earnings reports.
“They closed the feature gap — namely the lack of a large screen (with iPhone 6 Plus) — and, as a result. they blew the doors off for revenue and earnings,” says Van Baker, mobile analyst at Gartner.
The record sales highlight the wild — and continued — popularity of the iPhone 6 and larger-screen iPhone 6 Plus. Apple sold a whopping 74.5 million iPhones during the quarter, a vast majority of them the latest models. Demand in China led the way.
A Fortune panel of 30 Apple analysts expected iPhone sales of 66.5 million, up 30% from the same quarter a year ago.
In October, Apple CEO Tim Cook forecast the recently completed quarter would be Apple’s best ever, with revenue of $63.5 billion to $66.5 billion.
Apple’s year-over-year growth was led by China, at 70%, followed by the Pacific (33%), the Americas (23%) and Europe (20%).
The cash-rich company, which is the world’s most valuable, is currently sitting on $178 billion in cash.
Apple’s greatest asset could pose a potential problem. Some 65% of its quarterly revenue is gleaned from iPhone sales — and nearly every handset maker has eventually encountered trouble because of ever-shifting consumer tastes and an expanding competitive landscape, says Colin Gillis, research director at BGC Financial.
The sales momentum should continue into the spring, with the launch of Apple Watch.
Gillis expects Apple to sell 30 million Apple Watches in the first four quarters they are available. By comparison, 19.4 million iPads and 11.6 million iPhones were sold in their first years, respectively.
Another possible pitfall: Apple continues to be snared in a conundrum of topping itself each time it reports earnings. Billionaire activist investor Carl Icahn has argued that Apple shares are undervalued and should be trading at $203 a share — which would value the company at a staggering $1 trillion.
Yahoo shares rallied 7% late Tuesday after the company said it would spin off its remaining $40 billion stake in Alibaba into a separate entity.
Stock in the new investment company created by the tax-free move, SpinCo, will be distributed to Yahoo shareholders at the end of the year.
The maneuver is good news for investors, who saw declining revenues and earnings from Yahoo’s most recent quarterly results.
On a conference call with investors, embattled Yahoo CEO Marissa Mayer gave little indication of how SpinCo would spend its money, or what kind of companies it would invest in. “We’re looking for smart opportunities,” she said.
Yahoo (YHOO) reported revenue for the last three months of 2014 dropped to $1.25 billion from $1.27 billion in the year-ago quarter, while earnings were about half of what they were — $166 million in the most recent quarter vs. $348 million in the year-ago period.
Activist investor Starboard and others had urged Yahoo for a spinoff. Yahoo had already sold about 20% of its Alibaba stake in September, raising $8 billion. But it still owns a big piece of the Chinese Internet company — 384 million shares, or 15%.
By taking the spinoff route, Mayer argued Tuesday, it’s saved investors $16 billion in tax payouts.
Results for the most recent quarter slightly topped estimates. Operating earnings were 30 cents a share, a penny over forecasts from analysts polled by Thomson Reuters. Sales also beat revenue estimates of $1.19 billion.
The company, still the No. 2 most visited Web property after Google, has been battling declining advertising sales as high-profile CEO Mayer is in the midst of a multiyear comeback attempt.
Mayer said the results show a “stability in our core business,” with a focus on mobile showing significant results. Mobile sales are up 23% from the previous quarter, with $254 million in revenues, and $1.26 billion for the complete year.
Mayer said that Yahoo was focused primarily on the desktop when she joined Yahoo, until she turned attention to mobile.
Revenue generated from mobile means “we created $1 billion in revenue basically from nothing,” she said. The rise in mobile advertising will offset the decline in traditional display advertising, Mayer said.
Most investors look to Yahoo not for its popular e-mail, entertainment, sports and news properties, but its investment in China’s highflying e-commerce giant Alibaba. The news of the split-off encouraged investors, who have been down on the stock over the last 12 months.
STOCK LOST GROUND
The stock has lost 9% from the 52-week intra-day high of $52.37 reached on Nov. 17, 2014. It traded at $51.45 after hours Tuesday.
“We haven’t seen any material uptick in revenue growth for a while,” says Scott Kessler, an equity analyst with S&P IQ. “But they clearly own a substantial stake in one of the most important tech companies on the planet (Alibaba), and that now carries more weight than the company’s proud history.”
Yahoo is still one of the most visited websites. In its most recent survey of online traffic, Yahoo was No. 2 to No. 1 Google’s 253 million monthly visitors, with 217 million, ahead of Facebook’s 206 million, according to measurement firm ComScore Media Metrix.
But in the all-important advertising market, Yahoo has been hurting.
Yahoo’s share of the $146 billion worldwide digital advertising market fell in 2014 to 2.36%, from 2.83% in 2013, says eMarketer. Google and
Facebook dominate with 31.1% and 7.75% in 2014.
And its share of search continues to fall, despite a new deal with Firefox as the default search engine for the browser. Google dominates with 71.6%, to Bing’s 9.2% and Yahoo’s 5.7%, down from 6.1% in 2013.
It is growing in mobile advertising, however. In the U.S., Yahoo reaped 3.2% of the $18.75 billion mobile ad market in 2014, and, according to eMarketer, “is expected to see the largest share increase among the top U.S. mobile ad selling companies between now and 2016.”
Microsoft shares fell Monday after the software juggernaut reported its Nokia and Windows businesses undercut profits.
The company rang up $26.5 billion in second-quarter revenue, compared with $24.5 billion a year ago.
Earnings for the period, which ended Dec. 31, were in line with analyst estimates of 71 cents a share, compared with 78 cents last year. The bottom-line was dragged by costs related to job cuts and the $7 billion acquisition last year of Nokia’s mobile-phone business.
Shares of Microsoft MSFT lost 4%, to $45.01, in extended trading Monday. The Redmond, Wash., company released its second-quarter results after the close of markets.
Microsoft’s results kicked off a busy week for tech earnings, which pick up with reports from Apple and Yahoo on Tuesday, Facebook on Wednesday, and Amazon.com, Google and Alibaba on Thursday. EBay got the industry off to a stumbling start last week, when it announced 2,400 layoffs and plans to spin off its enterprise unit.
The second-quarter results held some encouraging signs for Microsoft’s transition from a software behemoth to a cloud-based business reliant on devices and value-added services.
But there were some weak spots beyond Nokia. Computing and gaming hardware sales fell 11% because of Xbox platform sales, while commercial licensing revenue — which includes its Windows business — fell 2%.