Apple Earnings: Q1 2015 Review

  • Apple reported Q1 2015 EPS of $3.06 on revenue of $74.6 billion, crushing Wall Street consensus on both the topline as well as bottomline.
  • The company reported a 48% YoY EPS growth, driven by 30% topline growth, profit margin expansion and the management’s share repurchase program.
  • Our Apple stock analysis assigns a buy rating to the stock.

Apple (NASDAQ:AAPL) earnings for Q1 2015 were released after market close yesterday (Jan 28). The company stormed to its highest ever revenue and profit numbers, crushing Wall Street estimates by a significant margin. However the iPad sales continued to be a sore spot in the Apple earnings release. The iPhone segment led the huge growth in Apple revenue and earnings, as Cupertino sold an average of 34000 iPhones every hour in the three months ending December 2014.

The company has also restructured its reporting product segments, clubbing iPod revenue with other products, as the iPod revenues declined to a level of insignificance, contributing less than 1% of the latest quarter revenue. The stock gained 6.5% (at the time of writing) in pre-market trade following the Q1 conference call.

Apple Q1 Earnings Summary

Apple crushed analyst consensus estimate for Q1 2015, delivering an earnings surprise of 18% on a 10% revenue beat.

Actual v/s estimates
Estimate Actual Beat/Surprise
Revenue ($, in billions) 67.56 74.6 10.4%
EPS ($) 2.6 3.06 17.7%

Source: Estimize

Apple registered a 30% YoY revenue growth accompanied by a 48% YoY growth in earnings per share (EPS), which was a huge improvement over the 6% revenue growth and EPS growth of 5% in the year ago quarter. The EPS growth was fuelled by profit margin expansion as well as share repurchase program. Apple’s Q4 2014 performance is summarized in the table below.

Q1 2013 Q1 2014 Q1 2015 Q1 2014 YoY growth Q1 2015 YoY growth
Revenue 54512 57594 74599 5.7% 29.5%
Gross profit 21060 21846 29741 3.7% 36.1%
Operating Income 17210 17463 24246 1.5% 38.8%
Net Income 13078 13072 18024 0.0% 37.9%
EPS 1.97 2.07 3.06 5.1% 47.8%

iPhone 6 Contributes Significantly To Apple Topline

Apple revenue growth of 30% was the highest year on year (YoY) growth rate reported by the company in the last 11 quarters. The strong topline growth was driven by 58% YoY growth in iPhone revenues. The revenue growth by product segments is summarized in the chart below.

Apple revenue by product segment Q1 2015

The growth in the iPhone segment made up for the 22% decline in iPad revenue and lower growth in other product segments. Mac revenue growth, at 8.6% YoY, came in lower than earlier quarters. However, this was a significant growth as the Mac shipments rose 14% even as global PC market continued its decline.

The strong growth in the iPhone segment resulted in the segment contributing 69% of Apple revenue in Q1 2015, up from 56% in Q1 2014.

Apple Revenue Driven by iPhone ASP and Shipments

The iPhone revenue was driven by a mix of increasing average selling price (ASP) and rise in shipments. The iPhone ASP grew by 8% YoY and 14% QoQ, fuelled by the higher prices of the iPhone 6.

ASP growth
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
iPhones -0.7% -2.8% -3.4% 4.4% 7.9%
iPads -5.7% 3.7% 1.7% -1.8% -4.8%
Mac -2.7% -3.2% -3.7% -2.4% -4.8%

Another major driver of the iPhone sales was the solid increase in the iPhone unit sales. Apple saw unit sales of iPhone rise 46% YoY, significantly higher than the 16% growth in Q4 2014 and 12.7% growth in Q3 2014. On the other hand, iPad shipment decline accelerated to 18% in Q4 2014 as compared to a13 % fall in Q4 2014 and 9% decline in Q3 2014. The MAC unit sales rose 14% YoY even as the global PC market continued to decline.

Apple Profit Margins see Expansion

Apple profit margins saw an expansion at gross, operating as well as net levels, which can be attributed to the increase in iPhone ASP.

Profit margin analysis Q1 2014 Q1 2015 Q1 2015 YoY change
Gross margin 37.9% 39.9% 1.9%
Operating margin 30.3% 32.5% 2.2%
Net Income margin 22.7% 24.2% 1.5%

The profit margin expansion was attributable to the higher number of iPhones in the sales mix, leading to gross margin expansion by 190 bps. The expansion in operating margin was led by an 18% YoY growth in selling, general and administrative (S, G&A) expenses, which was significantly lower than topline growth. The S,G&A expenses, at 66%, represented the major chunk of Apple’s operating expenses in the quarter. The Net profit margin expanded by 150 bps, negatively impacted by a lower non-operating income.

The strong revenue growth, profit margin expansion and Apple’s share repurchase program led to a 48% YoY growth in the earnings per share (EPS). Apple spent $5 billion to repurchase 45 million shares through the quarter.

Apple CFO Luca Maestri stated on the conference call:

“We have now taken action on almost $103 billion of our $130 billion capital return program, including $73 billion in share repurchases, with four quarters remaining to its completion.”

With $27 billion left under the firm’s capital return program, the buyback program will continue to fuel earnings growth at Apple over the next four quarters.

Apple Q2 2015 Guidance

Apple’s management provided the following guidance for Q2 2015.

  • revenue between $52 billion and $55 billion
  • gross margin between 38.5 percent and 39.5 percent
  • operating expenses between $5.4 billion and $5.5 billion
  • other income/(expense) of $350 million
  • tax rate of 26.3 percent

The revenue guidance is marginally lower than the analyst consensus estimate of $53.65 billion. Modelling the management’s guidance for Q2 leads to Q2 2015 EPS range of $1.86 to $ 2.09. The street consensus estimate is EPS of $2.01.

In conclusion, the continued momentum from iPhone 6 sales (have higher profit margin) and continuation of Apple’s huge buyback program will continue to drive Apple earnings growth over the long term. We reiterate our positive long term outlook on Apple stock, as reflected in our Apple stock analysis.

Apple Earnings Preview

-- Apple Q1 2015 Earnings Preview (published on January 16, 2015)

  • Apple is set to report its Q1 FY 2015 earnings on January 27, 2015 after market close.
  • Record iPhone sales driven by iPhone 6 models will drive Apple revenue and profits.
  • Our Apple stock analysis assigns a buy rating to the stock, with strong topline and earnings growth expected over the next year.

Apple is scheduled to report its holiday quarter results after the market close on January 27th, Tuesday. The holiday season quarter, the first quarter of Apple’s fiscal year is eagerly awaited as it will confirm indications of the strong reception for its latest iPhone models. Wall Street estimates Apple to report Q1 2015 earnings per share of $2.56 on revenue of $67.09 billion. In a recent post on Apple sales through the Christmas week, we had highlighted that iPhone 6 could propel Apple to a revenue beat and earnings surprise in the holiday quarter.

Apple Q1 Will Confirm Popularity Of iPhone 6

In our Apple earnings report for Q4, we saw strong sales of iPhone 6 driving solid growth in Apple revenue as well as earnings, toppling analysts estimates by a fair margin. However, the latest models of the iPhone were on sale only for the last 10 days of the September quarter and hence their full impact will be seen in the upcoming results.

The iPhone 6 and 6 Plus have seen strong unit sales, with one analyst putting the iPhone 6 sales in the holiday quarter at 57 million units out of total iPhone sales of 71.5 million units. The launch of the latest models have also seen Apple gain market share in major global markets, with Forbes reporting a 50% increase in iOS US market share from September to  November 2014.

Apple OS market share November 2014

Apple OS market share
Source: Kantar World Panel

The latest numbers from Kantar world panel tech show Apple gained market share in each of the tracked global markets from October to November 2014. iPhone segment is a major revenue segment for Apple, having contributed 56% of the total Apple revenue in FY 2014. A major boost in this segment could see Apple revenue grow substantially.

Estimates for iPhone unit sales for Q1 2015 have ranged from 65.5 million to 71.5 million. Using different average selling price points, Apple could end Q1 2015 with $40 billion to $53.6 billion revenue from the iPhone segment.

iPhone revenue (in billions of $) iPhone unit sales (in millions)
Wall street estimates UBS estimates KGI securities
iPhone ASP ($) 65.5 units 69.3 units 71.5 units
600 39.3 41.58 42.9
650 42.58 45.05 46.48
700 45.85 48.51 50.05
750 49.13 51.98 53.63


iPhone ASP, in all likelihood, will come in between $700 and $750 with shipments closer to the 70 million mark, implying $50 billion revenue from the iPhone segment alone. The latest numbers on the iPhone unit sales will be indicative of the impact of the iPhone6 and iPhone 6 plus models on Apple financials in the coming quarters.

iPads segment will continue to decelerate

The iPad segment has been the sore spot in each of Apple earnings reports over the last few quarters. The segment is expected to continue decelerating over the coming quarters, at least until Apple releases the iPad pro models. The unit shipments registered YoY falls of 16%, 9% and 13% in Q2, Q3 and Q4 2014, respectively. In a post on Twitter, Above Avalon estimates iPad sales of 19.5 million, implying a 25% YoY fall in iPad shipments.

Using iPad sales data over the last few quarters and analyst estimates, we came up with the following iPad shipment scenarios for Q1 2015.

iPad sales revenue (in billions of $) iPad sales (deceleration and unit sales)
-25% -15% -10%
iPad ASP 19.53 units 22.13 units 23.43 units
400 7.81 8.85 9.37
420 8.20 9.29 9.84
440 8.59 9.74 10.31

iPad ASP will likely come in around $420 with a YoY deceleration in the range of 25% to 15%, implying Apple revenue from iPad segment will be between $8.2 billion to $9.2 billion.

Other Product Segments

MAC segment registered a 16% YoY gain n shipment volumes in FY2014 leading to a 12% rise in revenues. This was a pleasant surprise from a segment considered to be stagnant. In an earlier post on Amigobulls, we had highlighted that the PC segment could grow 10% in 2015, leading to further growth in the MAC segment.

There could also be reporting changes with iPod segment getting clubbed with another revenue segment as it now contributes less than 1% of Apple’s quarterly revenue.

Apple Earnings: Q1 2015 Analyst Consensus Estimates and Management Guidance

The current consensus estimate for Apple Q1 2015 is earnings per share (EPS) of $2.56 on revenues of $67.09 billion. The analyst estimates and expected YoY change is summarized in the table below.

Analyst estimates
Revenue ($, in billions) EPS ($)
Analyst consensus 67.09 2.56
Expected YoY change 16.5% 23.7%

Source: Estimize

The current consensus revenue estimate is higher than Management’s guidance range of $63.5 billion to $66.5 billion. The management’s guidance, outlined in the Q4 2014 Apple earnings release, is modelled in the table below.

Management guidance (in billions of $, except per share numbers)
Low end Average High end
Revenue 63.5 65 66.5
Gross profit 23.8125 24.7075 25.6025
Operating expenses 5.4 5.45 5.5
Operating Income 18.4125 19.2575 20.1025
Other Income 0.325 0.325 0.325
Income before tax 18.7375 19.5825 20.4275
Provision for taxes 4.965438 5.189363 5.413288
Net Profit 13.77206 14.39314 15.01421
Current number of shares outstanding 5.9 5.9 5.9
EPS 2.33 2.44 2.54

The average estimate derived from Management guidance is an EPS of $2.44 on revenue of $65 billion.

Based on the latest iPhone sales data and other product segments expectations, we expect the company to significantly surprise the street.


The current Apple Q1 2015 consensus estimate is on the higher side of the management guidance. We expect Apple earnings to surprise the street, driven by strong iPhone 6 and 6 plus sales and higher ASP for the iPhone product mix. The company is poised to see margin expansion, which will translate into earnings growth well ahead of topline growth. We re-iterate our long term bullish outlook on Apple, which is reflected in our Apple stock analysis.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and AAPL stock

iphone6 is doing very well. The worry is about future, no word on iwatch or itv (or appletv or whatever). iwatch will be the first real new product line after Jobs, i am not too hopeful.
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