Last week, Apple shared their financial results for the second quarter of fiscal year 2023. For the period ended April 1, 2023, the company reported total revenue of $94.8 billion, a 3% decrease year-over-year. Though total revenue was down, Apple CEO Tim Cook said on the earnings call that revenue beat expectations. Total revenue was made up of $73.9 billion in Products revenue and $20.9 billion Services revenue with Services revenue growing as a percentage of total revenue.

For this quarter, Products revenue was 78% of total revenue, while Services revenue made up the remaining 22%, a 4.3% increase over the first quarter of fiscal year 2023, when Products revenue was 82.3% of total revenue, and Services revenue was 17.7%.

Services revenue is particularly strong because Apple now has more than 975 million paid subscriptions across a wide range of products (e.g., Apple TV+, Apple Music, AppleOne, etc.). This is an increase of 150 million paid subscriptions in the last 12 months and nearly double the number of paid subscriptions from three years ago. Though these are impressive numbers, Cook said Apple Services are “underpenetrated,” so he believes there is room for growth.

Apple shared the following net sales by category for the quarter:

“We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high,” said Cook in a May 4 news release. “We continue to invest for the long term and lead with our values, including making major progress toward building carbon neutral products and supply chains by 2030.”

On the earnings call, Cook said that users love the iPhone 14 and 14 plus with features that include a long lasting battery and advanced camera.

Other financial highlights

Apple reported the following highlights for the quarter:

• The company had net income of $24.2 billion, down from $25.0 billion year-over-year.
• Diluted earnings per share were $1.52, the same as reported for the second fiscal quarter of 2022.
• The company ended the quarter with cash, cash equivalents and restricted cash of $24.98 billion.
• Net sales were the highest in the Americas at $37.8 billion of total sales, followed by Europe at $23.9 billion, Greater China at $17.8 billion, Japan at $7.2 billion, and the rest of Asia Pacific at $8.1 billion.
• Company gross margin was 44.3%. Products gross margin was 36.7%, and Services gross margin was 71%.
• The Apple board declared a cash dividend of $0.24 per share, a 4% increase. The dividend is payable on May 18 to shareholders of record at the close of business on May 15.
• The board also authorized an additional $90 billion for share repurchases.

Operational highlights

In March, Apple launched Apple Pay Later, its version of the buy now, pay later model, offered through subsidiary Apple Financing LLC. With Apple Pay Later, customers can split purchases into four payments over six weeks with no interest or fees. Customers are subject to credit approval. Currently, the service is only available in the U.S., and not all merchants are eligible to offer Apple Pay Later. Also in March, the company launched Apple Music Classical, and in April, Apple launched Apple Card Savings Accounts.

“At Apple, our customers are at the center of everything we do. Nowhere is that more evident than retail, where our teams are dedicated to sharing the best of Apple with our customers. And we’re constantly innovating to deliver exceptional experiences and meet our customers where they are,” Cook said.

On the earnings call, CFO Luca Maestri said Apple’s installed base of active devices is now over 2 billion.

“We continue to grow across every major product category and geographic segment, thanks to very high levels of customer loyalty and satisfaction,” Maestri said.

The company did not provide official guidance for the quarter, but Maestri said, “We expect our June quarter year-over-year revenue performance to be similar to the March quarter assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter.”

Insider Take

Though total revenue was down slightly and down for the second consecutive quarter, Apple’s second quarter earnings beat Wall Street expectations due to strong iPhone sales, reports CNBC. What we find particularly impressive is that Services revenue continues to grow and gross margin for this category is quite high. Apple has seen huge success with paid subscriptions in the last 12 months, in particular. Of course, the tech giant is virtually unmatched in terms of product innovation, and we’ve seen that Team iPhone has overtaken Team Android from a popularity perspective. With new products and services on the horizon and solid iPhone sales, Apple has the wherewithal to survive an economic downturn.