It was another landmark day for Apple yesterday as the company revealed its Q2 2021 earnings, reflecting how well it did in the first part of 2021 — January to March — and blowing away the expectations set by just about every analyst on the planet.
This latest period, of course, follows Apple’s record-breaking holiday quarter, and while it’s not reasonable to expect sales and revenue to be as high as it is during the holiday gifting season, Apple still turned in some staggeringly impressive numbers for what’s traditionally a slower time of the year.
That’s arguably even more surprising considering that Apple had no major product releases during the quarter, although the numbers show sales from its exciting fall product lineups are still going strong. Read on for 9 exciting and interesting things Apple shared during its latest earnings call on Wednesday.
Right off the bat, it was another record-breaking quarter, with revenue of $89.6 billion. Although that’s still dwarfed by Apple’s $111.4 billion Q1 2021 revenue, it’s important to remember that these numbers are compared year-over-year, so it’s the comparison to the Q2 2020 numbers that really counts.
In that context, the numbers are actually mind-blowing, showing a 54% increase in revenue over last year’s $58.3 billion. Granted, Q2 2020 represented a time when we were just entering the first throes of the novel coronavirus pandemic, but that just resulted in relatively flat revenue for Apple, with the company posting $58 billion in Q2 2019.
So, either way it’s a massive jump in sales, and Apple not only saw double-digit growth in every single one of its product categories, but iPhone, Mac, and iPad all grew by well over 50%.
- iPhone: $47.9 billion (65.5% growth)
- Mac: $9.1 billion (70% growth)
- iPad: $7.8 billion (78.7% growth)
- Wearables, Home and Accessories: $7.8 billion (24.7% growth)
- Services: $16.9 billion (28.6% growth)
While Apple didn’t release any new products during the quarter, it’s obvious from these numbers that sales of the iPhone 12, the M1 MacBooks, and the 10.8-inch iPad and iPad Air 4 remained extremely strong, even as we awaited the unveiling of a new iPad Pro lineup and more M1 Macs.
Apple’s Services Now Boast Over 660 Million Subscribers
While Apple’s Services business had the second-least growth overall, it was actually the only category that still saw a big increase over its Q1 2021 numbers, jumping to $16.9 billion from $15.8 billion during the holiday quarter.
This was likely driven primarily by Apple’s new Fitness+ service, combined with its Apple One Premier bundles, particularly since Fitness+ was only debuted in mid-December, near the very end of Q1 2021.
While Apple didn’t share a specific breakdown of subscribers, Apple CFO Luca Maestri did reveal that it now boasts 660 million paid subscribers across all of its services. Maestri also told the Financial Times that the company added 40 million new subscribers in Q2 2021, with paid subscriptions growing by 145 million over the past year.
These numbers include subscribers not just to Apple’s most well-known user-facing services such as Apple Music, Apple TV+, Apple Arcade, and Apple News+, but also things like iCloud storage and monthly AppleCare plans.
Despite having over half a billion subscribers, however, the lion’s share of Apple’s Services business still comes from the 15–30% commission it takes on App Store sales and its multi-billion-dollar search deal with Google. However, these are also the first Services numbers available since Apple dropped its App Store commission to 15 percent for smaller developers, suggesting that end-user subscriptions are growing at a healthy pace, easing Apple’s reliance on App Store revenue to drive as much of its services business.
Apple TV+ Is Going ‘Very Well’
When asked about Apple TV+, Apple’s CEO flatly declined to share specific subscriber numbers, however he praised the service as “one of the most desired platforms for storytellers,” adding that he “feels really good about where we are.”
Cook also noted that Apple originals have received a total of 352 award nominations, and 98 wins, citing shows like Ted Lasso, The Morning Show, and Defending Jacob as ones that have “gotten significant buzz.”
At this point it’s unclear whether the 660 million “paid subscribers” to Apple’s services include those Apple TV+ users who have opted in for the free year that comes with the purchase of a new Apple device. Apple reallocates a portion of hardware sales into its Services category for each users who signs up for the free year of Apple TV+, so these free subscribers are definitely reflected in its Services revenue, and it therefore stands to reason that Apple is likely also including them in its total paid subscriber count.
In other words, “paid subscribers” to Apple TV+ may not just mean those who are paying out of their own pockets, but also those who effectively paid for their subscription as part of their iPhone, iPad, Apple TV, or Mac purchase.
Mac and iPad Sales Skyrocket
It’s probably not a big surprise during a time when so many are still working and learning from home, but Mac and iPad sales each increased by over 70 percent compared to the same time last year, but even more amazingly continued almost entirely unabated from the previous holiday quarter.
Both categories were undoubtedly powered by the release of Apple’s incredible new M1 MacBook Air and MacBook Pro models last November, especially since these arrived relatively late in the last quarter. However, Apple’s iPad sales grew even more, revealing how popular the new iPad Air 4 and 10.8-inch entry-level iPad have turned out to be.
In fact, Mac sales actually grew slightly over the holiday quarter, jumping to $9.1 billion from $8.7 billion — a very rare occurrence in Apple history, where the holiday quarter almost always dominates sales, especially compared to the quiet January-March timeframe that follows.
Even iPad sales didn’t slow down significantly, dropping only to $7.8 billion from Q1’s $8.4 billion, a modest drop considering the mere $4.4 billion in sales that were recorded in Q2 2020.
Highest Gross Margin in Years
For years, Apple’s gross margin — the ratio of the company’s profits compared to its net sales — has hovered around 38 percent. It’s a healthy and respectable number, but this year it jumped to the highest level that it’s been in nine years, at $38 billion, or 42.5%.
Basically, this means that out of Apple’s $89.5 billion in revenue, $38 billion of that was straight profit. The last second quarter where Apple broke the 40% mark was in Q2 2015, when a $23.7 billion in profit out of $58 billion in revenue gave it a gross margin of 40.8%.
During the earnings call, CFO Luca Maestri indicated that strong demand for the higher-end iPhone 12 Pro and iPhone 12 Pro Max was one of the driving factors in pushing the gross margin higher, along with internal cost savings and favourable foreign exchange rates. Strong sales across all product categories contributed overall, however, and Apple expects the higher gross margin to continue into Q3.
The iPhone 12 Continues to Dominate
Except for the beleaguered iPhone 12 mini, Apple’s iPhone 12 lineup saw strong sales continuing into the second quarter, although naturally the mainstream iPhone 12 led the pack.
In fact, Apple CEO Tim Cook conspicuously omitted any mention of the iPhone 12 mini, and while he didn’t offer any specific sales numbers, he did say that the iPhone 12 was the most popular, while adding that both Pro models are seeing “very strong” sales as well.
New Mac and iPad Buyers Are Pouring In
One of the biggest factors that contributed to the massive growth Mac and iPad sales is the fact that half of the sales in Q2 came from new users.
This was shared by CFO Luca Maestri during the earnings call, revealing that Apple’s base of installed devices is actually expanding dramatically, which will, of course, drive even more services revenue and potentially even increase uptake for other hardware and accessories, thanks to the usual Apple “halo effect.”
To be clear, Maestri didn’t say that all these purchases came from those who were entirely new to the Apple ecosystem, however, so it’s unclear how many new revenue opportunities these represent beyond the sales themselves. For example, a first-time iPad buyer may already be a Mac and iPhone user, or vice-versa for new MacBook owners.
Interestingly, however, these numbers were even higher in China, where Tim Cook noted that two-thirds of Mac and iPad purchases were made by new customers.
Sales in China Are Way Up
Speaking of China, Apple saw even more growth in that market specifically, with its earnings increasing by 87.5% over last year, to $17.7 billion in total.
Cook shared that customers in Greater China have responded very well to the iPhone 12 family, particularly with the addition of 5G support. Apple has been attracting a wealth of new customers in that country, which bodes well considering the overall size of the market.
In fact, Greater China and the Asia Pacific region saw the most dramatic growth overall, with a 94.2% increase across the entire region. The Americas gained only 34.7%, while Europe was at 55.8% and Japan was 48.7% over last year.
Mac and iPad Shortages Are on the Horizon
Unfortunately, the news wasn’t all positive, as for the first time Apple acknowledged that ongoing global component shortages could, in fact, impact the Mac and iPad lineups going into Q3.
Notably, Cook said that Apple managed to weather this through Q2, as it normally plans ahead, so it simply ate into its “buffers and offsets” of existing component stock. However, both Cook and Maestri indicated that the Mac and iPad lineups may be somewhat supply constrained in the coming quarter.
This is going to be even more apparent as demand for Macs and iPads is expected to remain strong as people continue working from home. Maestri said that the constraints could cost Apple up to $4 billion in revenue for the third fiscal quarter, simply because it won’t be able to make enough Macs and iPads to keep up with the expected demand.
With the new 2021 iPad Pro models and 24-inch iMac expected to go on sale tomorrow, it remains to be seen how much impact these shortages will have on the new product lineup.