Apple Q2 2014 performance: breakdown and analysis

The dust has finally settled following Apple’s Q2 2014 performance announcement on Tuesday. With that in mind, it would seem appropriate to run through exactly what we learned about Apple’s performance, examining its recent success, and hopefully establishing where Apple might be headed in the future.

As you well know, Apple posted some barn-storming results, earning $45.6 billion in revenue, and just over $10 billion in profits. Apple’s overall financial performance and growth seems very secure, and indeed lucrative. Excellent year-on-year growth saw Apple post its best ever non-holiday quarter results, which we can all agree bodes very well for Apple’s current financial success and stability.

Following this brief announcement, Tim Cook, Apple CEO, took to the airwaves in Apple’s customary conference call for a much more detailed breakdown of its performance, along with the opportunity for analysts to pose their questions to the man himself. With that in mind, there are several really interesting notions we can take away from the call with Cook.

Tim Cook

1. iTunes’ is now a colossal credit card database

Cook opened with a brief look at iTunes, where he revealed that Apple’s iTunes account user base has reached nearly 800 million customers. More importantly, the majority of these accounts have credit cards tied to them, which users use to make iTunes purchases. This is incredibly interesting, because recently it was revealed that Apple was in the process of hiring some key employees in order to drastically expand into the world of electronic payments. At Apple’s last such earnings call, Cook stated:

“We’re seeing that people love being able to buy content, whether it’s music or movies or books, from their iPhone, using Touch ID,…It’s incredibly simple and easy and elegant. And it’s clear that there’s a lot of opportunity there. The mobile payments area in general is one that we’ve been intrigued with, and that was one of the thoughts behind the Touch ID. But we’re not limiting ourselves just to that.”

According to sources, Apple has “very, very serious” plans to use its iTunes database as a platform for a very profitable purchase and transaction system, which is why Apple’s massive credit card database is interesting. Mentioning this aspect first would seem to show that Cook and Apple hold iTunes in very high regard, and I think that it’s most likely because of the prospect of a financial payment system that we’ve already heard rumors about.

2. The iPad is confusing everyone

The iPad is an interesting device, marking Apple’s strongly convicted belief that we are living in a post-PC era (almost). Writing this on a PC, I’d be inclined to disagree. Regardless, the iPad is causing some confusion across the board. Cook claims that iPad sales were higher than Apple had expected them to be this quarter, however he also acknowledged that these sales were lower than analysts had predicted. This is key because, like it or not, the prominence and success of Apple’s stock is highly influenced by what analysts have to say on the matter. Cook claimed that decreasing its iPad channel inventory was the main reason sales were down year-on-year, in the same quarter last year Apple increased its iPad inventory. Furthermore, it’s been noted that Apple ended Q1 with a backlog of iPad mini orders, which shipped in the second quarter, but will be attributed as sales to the first.

The iPad now makes up 95% of all tablets used in education, and 91% of tablets used in business. Office for iPad was also recognised as a further boost to the iPads appealed, although Cook slyly mentioned that Microsoft probably should have done it earlier. Cook also stressed that it was more important to look more at the overall trend of the iPad, rather than quarterly performance. On that basis, the iPad is still doing phenomenally well, and Cook stated that there was “no shortage of work” going into the next iPad. A device I’m sure you’re all very excited about.

3. The iPhone is stronger than ever

Apple posted a record iPhone quarter in Q2, with half of added iPhone users totally new to the product. This is almost entirely down to Apple’s expansion into China, and its epic deal with China Mobile. Yet Apple is also enjoying excellent results from its iPhone 4S, a device now more than two years old. Some regions saw 80% of new iPhone customers buy the iPhone 4S, which is staggering when you think about it. Apple tends to enjoy success in emerging and developing markets as the hype from a major launch dies down. Cook also commented on how carriers could increase upgrade cycles, offering users higher priced deals in order to upgrade more often. With Apple following a yearly policy of iPhone updates, most regular consumers miss out on one, or even two Apple iPhones with each upgrade cycle. Of course, more regular upgrades would be extremely beneficial to Apple.

Whilst Cook gave nothing away on the next iPhone, one very prominent iPhone rumor did make it into the call. It was recently rumored that the next iPhone could be $100 more expensive than previous instalments. One analysts asked Cook about charging more for future products that were highly innovative, citing how Apple had been surprised by iPhone 5s demand. On that, Cook staunchly claimed that its products were fairly priced, and further added that decisions of this nature were made when the device was closer to market. With that in mind, if Apple does increase the price of its next iPhone, it will likely do so with the firm believe that the increase is merited, however its probable that the decision hasn’t yet been made.

In terms of products and Apple’s future, these were the most important aspects of the call. It was reiterated several times that Apple’s stock price did not really reflect the value of the company. For me, the most exciting prospect for Apple’s future is the introduction of a financial payment and transaction system, which could offer incredible innovation in the way we handle and spend our money in the future.

If you’d like to listen to the call in full, it will be available on iTunes for a little while. iTunes

Leave any thoughts and comments you have on Apple’s performance, and its future prospects down below, and be sure to check me out on Twitter @TiP_Stephen for all the latest Apple news and opinions.

 

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  • http://j.mp/DocMak Juliana Fitzwater Julia

    Apple knows about as much about selling to the enterprise as Microsoft …

    • Stephen Warwick

      What makes you say this?