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Apple earnings vibe check: Tech giant stresses bright spots after rare Q1 miss

In the latest “After the Call,” Yahoo Finance’s Brian Sozzi and Brad Smith discuss the vibe of Apple’s earnings call after the tech giant’s execs aimed to sound upbeat on the business despite softer-than-expected Q1 earnings results and economic uncertainty.

Video transcript

BRAD SMITH: After the Call on Yahoo Finance starts right now, folks. Brad Smith here with Brian Sozzi. We just got off the Apple earnings call, folks, and we were saying, going into this call, Brian, that Tim Cook's voice sounded like butter on a croissant, but man, he sounded like his true mobile Alabama self. We heard a little bit of that accent coming out.

And honestly, my takeaway from this call was this sounded like a sour apple in a sour consumer discretionary spending environment right now. China and India are looking like incredible edibles right now. But outside of that, there were not too many bright spots to really feast on at this point in time.

BRIAN SOZZI: Well, before I give you my takeaways, Brad, I have to give a shoutout to Rich Cramer, analyst on this call. I think [AUDIO OUT]. So you know who's having an absolutely terrible night? Not you, Brad. Not me. That is analyst Rich Cramer. He didn't even get his question to Tim Cook. I mean, just, oh, man, talk about sucks.

But look, there are a couple of good points in here. Not all was bad. Of course, you saw the earnings missed by a wide mile when those numbers hit after the close. You never really see Apple miss on earnings, so that is not good. But there were some positives here. I did like, I did like that services sales were up year over year, high single digit percentage. That was good. Also beat estimates.

Next thing here, Tim Cook on this earnings call saying their production is pretty much back to normal. Why is that important? Well, he really went on to say that demand was there during the quarter. Maybe not as strong as he would have liked, but the demand was there. It was just a function of him and their team not being able to get the physical assets, phones, iPads, Macs, whatever, you name it, into consumers' hands because of what was going on in China in terms of production. So those two things were good. Now, Brad, overall, there were some bad things here, to your point.

BRAD SMITH: There were some bad things. And I mean, you look line by line within the earnings report itself, and you really just look across some of those major categories-- iPhone, that having one of its worst kind of declining quarters. And they had to really kind of look across the board here at some of these different product lines. And iPhone, particularly, one of them, that one missing the mark on estimates. And I think for the activity that we had seen coming into this call, it was reflected in the shares.

But what was interesting and back to our point about the global opportunity here, when they started to talk about India, when they started to talk about China, that's when the stock, the Apple shares, AAPL, started to pare some of those losses here. It was down 4% going into this call, which is about the move that was anticipated or implied by some of the options volatility even coming into this earnings report. And so as of right now, only down 1%, off of some of those after-hours lows. Not too shabby, gives them a fighting chance going into tomorrow, or at least, gave them a fighting chance going into the call here, Brian.

BRIAN SOZZI: Yeah, and really, it was-- we were tracking this thing real-time. That stock was down at one point, Brad, more than 4%. As soon as that team, as soon as Cook and Luca Maestri, the CFO, mentioned that China rebound, you saw the shares really rebound after-hours, at one point, going positive. So that's that. Now, overall, my vibe check is this. We try to put a temperature or a pulse or overall takeaway on all these earnings calls. We did it last week. We'll do it here with Apple. I was torn.

I'm going to say good with a couple just asterisks here. First, I say it's good because services were up. You like seeing that is the sticky portion of Apple's revenue. So services was good in the context of a challenging economy that impacted the wearables, the business. So that was good. I do like hearing that production was back to normal. That's also good. I like the fact the company ended with $50 billion plus in cash. That was good, especially ahead of them potentially issuing another big buyback plan in April when they normally do it.

And on the buyback point, I'll add very quickly here, Brad, that they bought back close to $20 billion of their stock in this most recent quarter. That is a good indication that they are believing that they might get that China rebound, and they might get it pretty quickly in the next couple of quarters.

BRAD SMITH: Yeah, absolutely. And my vibe, very simple on this, was it was kind of a meh. I was kind of tossed in between saying that it was bad and it was ugly. I don't think it was either one of those, but it was kind of just a meh. It was the tone that was displayed, and they essentially were trying to be positive about some of those very things that we pointed out in services and in the global opportunity there and in China and India, which the IMF has already said is probably going to be the biggest contributors for economic growth globally this year. And so, yeah, that was positive, but there were some significant negatives as well within this earnings call.

BRIAN SOZZI: Yeah, and let's stay on the economy here. The economy was top of mind, or it was really called out in numerous times in this conference call. Here's what Tim Cook said.

TIM COOK: As a result of a challenging environment, our revenue was down 5% year over year. But I'm proud of the way we have navigated circumstances, seen and unforeseen, over the past several years. And I remain incredibly confident in our team and our mission and in the work we do every day.

BRIAN SOZZI: Brad, so that is Tim Cook, I would say, striking a downbeat tone on the economy. Now I'm going to go back to that earnings call transcript when it hits Yahoo Finance in shortly because I am just curious on how many times he actually mentioned challenging when talking about the economy. I counted about five. I might be a little off, but still, that is not a tone you normally hear from Apple, which is why I can't give this a sterling earnings call grade for the company.

BRAD SMITH: Well, I want to toss to a particular part of this earnings call. And this was from the CFO, Luca. And I'll play this for our viewers here real quick.

LUCA MAESTRI: Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights based on the assumption that the macroeconomic outlook and COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter.

BRAD SMITH: And so what I also wrote down in my notes just after that was that supply this quarter had been decent. And so within that, you think about some of the larger impacts that was really ensued by COVID. And it was that supply chain crunch, that kind of just rattling of the supply chain they said and Tim Cook said shortly after that that it was decent supply on most products for the quarter currently right now. So that's something to just keep in mind here.