Apple Boasts iPhone Sales But Mum On Watch (And Apple Pay)

Let’s take a little quiz.

Q: How many iPhones did Apple sell in its third quarter?

A: 47.5 million.

Q: How many Apple Watches did Apple sell in its third quarter?

A: Only Apple execs really know for sure — and they’re not talking.

Q: How is Apple Pay doing?

A: See prior answer.

That — and these three phrases — can completely sum up the story of Apple’s earnings this quarter.

Profits up.

Revenue up.

Market cap down by $66 billion.

In the first quarter following the official launch of the Apple Watch, Apple posted another strong quarter with a profit of $10.7 billion (up $3 billion YOY) and revenue of $49.6 billion (up 33 percent YOY). It saw iPhone revenue of $31.37 billion, and in the “other” category, it saw a revenue of $2.64 billion.

Yet Apple’s stock also took an 8 percent tumble during post-trading hours. Apple may have sold a ton of iPhones (47.5 million), but not as many as analysts had expected (48.8 million) — and that drove its stock price down and wiped out $66 billion in market cap. But, before you feel too sorry for Apple, they have $203 billion in cash in the bank (just $100 billion more, and they could completely pay off Greece’s debt).

Analysts had also hoped that Apple would break out its catch-all “other” category in its third-quarter earnings report. The fact that Apple still won’t break down its Apple Watch sales figures is a bit of a puzzle and is something that many suggest portends a not so good story. Apple CEO Tim Cook, however, was quick to jump in to suggest that Apple has legitimate business reasons for keeping its watch figures hidden in its books.

“We made a decision back in September, quite several months ago, not to disclose the shipments on the Watch and that was not a matter of not being transparent, it was a matter of not giving our competition insight on a product that we’ve worked really hard on,” Cook said on the earnings call with analysts yesterday (July 21).

While Cook was mum on specific sales and number of watches sold (analyst estimates peg it to be around 2.79 million), Cook was far from mum about his thoughts on the Watch as a potential flagship product for Apple.

“Sales of the Watch did exceed our expectations, and they did so despite supply still trailing demand at the end of the quarter,” Cook said. “And to give you a little additional insight, through the end of the quarter, in fact, the Apple Watch sell-through was higher than the comparable launch period of the original iPhone or the original iPad. And we were able to do that with having only 680 points of sale. And as you probably know, as I had reviewed earlier, the online sales were so great at the beginning, we were not able to feed inventory to our stores until mid-June.”

With the Watch, Cook said Apple’s primary objective wasn’t just focusing on sales. Instead, he said the company is most excited about “how the product is positioned for the long term because we’re starting a new category.”

“As I back up and look at this, we have 8,500 apps. We’ve already announced the next operating system, watchOS 2. It will bring native apps, which are going to be killer, to the Watch. Even though the store layout was delayed, we’ve learned a lot about the buying experience. Based on that experience, we are now planning to expand our channel before the holiday because we’re convinced that the Watch is going to be one of the top gifts of the holiday season,” Cook said.

He added in some more color about how much he loves his own watch (of course) and how many notes he gets from other people praising the Watch. But when it came down to cold-hard earnings facts (the type analysts really, really want), Cook and Apple’s earnings figures will continue to leave those up to analysts and research firms to provide their own estimates on.

Much like the mystery stats about Apple Pay — which was also noticeably absent from the discussion. Analysts probably won’t hold their breath waiting for those stats. Outside of the well-known news — the mention of the U.K. Apple Pay launch (and soon to add American Express’ corporate cards) and the partnership with Square to enable access to its new EMV/NFC dongle that will enable Apple Pay — the mobile payments service wasn’t a part of the call. (Watch this space for the latest on Apple Pay adoption. We will be releasing our third quarterly results in two weeks.)

But what Cook did focus on was Apple’s strong quarter for iPhone sales, which helped propel Apple to its best June quarter to date. The iPhone unit sales grew 35 percent, which Cook said was “almost three times the rate of growth of the smartphone market overall, and we gained share in all of our geographic segments.”

He cited China and India as two top emerging markets for Apple, saying that the iPhone in China saw an 87 percent growth, year over year, in the smartphone market share, and India saw a 90 percent growth. He called the numbers “unbelievable” in China and said that Apple remains “extremely bullish on China,” noting that Apple believes it will eventually be the company’s largest market. 

“We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch,” Cook said in the earnings release. 

I guess we’ll have to take Cook’s word for that last part.