Five Key Takeaways from Apple’s Q3 Earnings

Apple’s Q3 earnings came out today after the market’s closing bell. The company (AAPL) generated $53.8 billion in revenue during the quarter, marginally beating Wall Street expectations of $53.4 billion. Apple’s revenue grew only 1.0% year-over-year. However, the company broke its streak of negative revenue growth from the previous two quarters.

Five Key Takeaways from Apple’s Q3 Earnings

Apple’s Q3 earnings came in at $10.0 billion, a 12.8% year-over-year decline. But the company made $2.18 per share, beating Wall Street’s estimate of $2.10 per share. AAPL stock was up nearly 3% in the extended hours of trading.

Here are the five things that most affected Apple’s performance during the quarter.

1. Apple’s iPhone revenue didn’t slip as much as previous quarters

Apple’s Q3 earnings included revenue of $25.99 billion from iPhone sales. This number was down 12.7% year-over-year. However, it marks an improvement from the 17.3% decline the segment saw during the second quarter.

That being said, the streak of shrinking iPhone revenue is a concern. Consumers are balking at Apple’s extremely high iPhone prices. Plus, consumers are hanging on to their smartphones longer. Why? Because upgraded features on newer phones are no longer motivating consumers enough to replace their phones each year. Apple’s iPhone worries are likely to continue—at least until the company upgrades to 5G.

2. Apple’s “Services” division almost negated shrinking iPhone revenues

Apple’s “Services”—like Apple Music and the App Store—remained a major driver of the company’s growth. During the third quarter, Apple made a record $11.46 billion from services, its second-biggest revenue contributor.

Revenue from services grew 12.6% year-over-year during the quarter. And this growth helped negate the double-digit decline in iPhone revenues. The segment represented 21.3% of the company’s total revenue—its highest percentage to date.

3. Apple’s revenue from the “Wearables, Home and Accessories” category also sped up

Apple’s revenue from the “Wearables, Home and Accessories” segment surged by a stunning 47.7% year-over-year during the third quarter to $5.53 billion. The segment includes Apple’s smartwatches, airpods, and HomePods. It had grown 30.0% year-over-year in the previous quarter.

Apple is seeing robust demand for its Apple Watch Series 4. The current model offers advanced health features as well as other attractive options.

Apple’s fast-growing segments—“Services” and “Wearable, Home and Accessories”—represented 31.6% of the company’s total revenue.

Five Key Takeaways from Apple’s Q3 Earnings

4. Apple’s revenue from China didn’t tank for a change

The key factor behind the company’s poor performance over the previous two quarters was revenue from China falling over 20% year-over-year. For Apple’s Q3 earnings, however, that wasn’t the case. Apple’ revenue from Greater China fell only 4.9% year-over-year, supporting the company’s overall growth.

However, Apple’s troubles in China are far from over. The US-China trade war aside, the company faces stiff competition from local competitors—especially Huawei. Plus, the Chinese smartphone market continues to shrink, affecting the company even further.

5. Margins fell, hurting Apple’s Q3 earnings

While Apple’s revenue grew 1% year-over-year in the third quarter, its operating margin continued to narrow. The tech behemoth’s operating margin stood at 21.5% in Q3. In comparison, its operating margin had been 23.1% in Q2 and 23.7% in Q3 of last year.