So Apple reported earnings Tuesday afternoon, and if you only looked at the top line numbers you'd think everyone should be popping champagne. $49.6 billion in revenue for the quarter, up from $37.4 billion a year ago. EPS of $1.85, beating what analysts were expecting. They sold 47.5 million iPhones, up 35% year over year. That's an absurd number. Most companies would kill for a bad quarter that looks like that.
And yet the stock got hammered. It fell hard in after-hours trading right after the call, and by the close the next day it was down close to 4%, on a quarter where they made more money than almost any company has made in three months. I don't think I'll ever fully get used to how Wall Street works, and I say that as someone who checks the stock app on his phone more often than is healthy for a guy who owns exactly twelve shares.
Here's the part that actually bugged me though, and it's not the stock drop. It's the Watch numbers. Or rather, the total lack of them.
This was the first full quarter with the Apple Watch actually shipping and sitting in stores, and Apple would not say how many they sold. Instead the sales got buried inside a line item called "Other Products," which also covers Apple TV, iPods, Beats gear, and random accessories, and that whole bucket posted $2.6 billion, up 49% from last year. Great, but that tells you basically nothing specific. Is that mostly Watch? Mostly iPod touches bought for twelve year olds going back to school? Nobody outside Cupertino actually knows, and Tim Cook wasn't exactly falling over himself to clarify when analysts pushed on it during the call.
I get why a company might not want to break out a brand new category right away, the first couple quarters of any product are messy and comparisons are unfair. Fine. But Apple's done this move before with stuff they weren't thrilled about, and it's hard not to read silence as a signal. If Watch sales were blowing past expectations they'd be shouting the actual figure from the rooftop, the same way they shout iPhone and iPad numbers every single quarter without being asked twice. Instead we get a vague blended bucket and a lot of talk about how "excited" everyone is about the "early response."
I bought one of the first-run Watch Sport models back in April, the 42mm space gray with the black band, and honestly my feelings on it are still mixed four months in. I like it for texts and for leaving my phone in another room while I cook dinner. I do not like how often I have to charge the thing, and the app situation is still pretty thin, a lot of stuff feels like a phone app that got shrunk down and shoved onto your wrist without much thought. Maybe that's normal for a version one product. My first iPhone in 2007 couldn't even copy and paste text, so I'm not holding it against the Watch too hard. But I'd like some real numbers to go with my anecdotal wrist strap experience, and apparently that's not happening this quarter.
The other thing worth mentioning from the call, since it's what actually spooked investors, is China. Cook talked up growth there but also hedged more than usual about the next few months, and that hedge is what analysts latched onto and ran with. Funny how one cautious sentence about a slowdown can erase billions in market value faster than a genuinely great quarter can add it. If you want a real lesson in how earnings calls work, that's it right there: the headline number barely matters next to the three sentences of guidance buried at the end.
Anyway. Great quarter on paper, a stock price that disagreed, and a product category everyone's curious about that Apple is choosing to keep foggy for at least one more quarter. I'll take the win on iPhone sales and keep charging my Watch every night like clockwork.