Shares of Apple Inc. (NASDAQ: AAPL) surged in extended trading on Tuesday after the company reported earnings and revenue that were higher than expected. Most notably, Apple’s sales returned to growth following two straight down quarters, a sign that the company was slowly diversifying its revenue streams amid an ongoing iPhone slump.

 

Q3 Earnings Summary

  • Earnings: $2.18 per share
  • Revenue: $53.8 billion
  • iPhone Revenue: $25.99 billion
  • Service Revenue: $11.46 billion
iPhone sales account for more than 48.3% of company-wide revenue, the first time since 2012 the smartphone hasn’t contributed to over half of Apple’s revenue.

For the quarter ended June, Apple’s earnings fell 13% year-over-yer to $10.04 billion, the company reported Tuesday. Despite the drop, per-share earnings came in at $2.18, much higher than the $2.10 expected.

Revenues edged up 1% over year-ago levels, reaching $53.8 billion. Analysts were expecting $53.39 billion in sales.

While overall revenues grew, iPhone sales continued to slump. The smartphone generated $25.99 billion in sales, down 12% from the same quarter last year and below the $26.31 billion expected. On the opposite side of the ledger, services revenue jumped 13% to $11.46 billion but was slightly below expectations.

As per the latest numbers, iPhone sales account for more than 48.3% of company-wide revenue. As CNBC reports, that’s the first time since 2012 the smartphone hasn’t contributed to over half of Apple’s revenue.

Apple also outperformed in another critical market: China. Sales to the Greater China region, which includes Hong Kong and Taiwan, fell 4% to $9.61 billion. Last quarter, the company’s China sales plunged 22%. Tim Cook, Apple’s CEO, said China’s VAX tax cut was a big help.

The earnings call provided investors with upbeat guidance on the September quarter, where Apple said it expects to generate anywhere from $61 billion to $64 billion in revenue. Analysts were expecting guidance of $60.98 billion.

 

Apple Stock Surges After Hours

Apple’s stock price rose more than 4% in after hours trading, reaching a high of $217.60 a share. The stock fell 0.4% in regular hours to close at $208.78. Year-to-date, AAPL has gained more than 32%. That’s significantly higher than the Nasdaq Composite and S&P 500.

Apple Share Price YTD - Jul 31 2019

Source: Yahoo Finance

At current values, Apple’s market capitalization is just $40 billion shy of $1 trillion.

On the earnings call, the company said it doled out more than $17 billion on buybacks of almost 88 million shares during the quarter. It also paid out $3.6 billion in dividends and equivalents.

 

Conclusion

Apple appears to be emerging from its China-induced slowdown, as evidenced by the stronger than expected revenue numbers and its upbeat guidance. Its acquisition of Intel’s modem division earlier this month is part of a much wider strategy to control more of the primary technologies behind its core products.

Disclaimer: Author holds no investment position in Apple at the time of writing.