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Apple shares jump 4.2% as services revenue hits all-time highs

As Apple closes in on a $1 trillion valuation: a combination of strong services growth and an optimistic fourth quarter outlook all likely contributed to the gains we saw in after-hours trade.

Apple share price Source: Bloomberg

The Apple Inc (All Sessions) share price rose 4.2% in after-hours trade following the release of the tech giant's third quarter results.

A combination of record services revenue, a slight earnings beat and strong fourth quarter guidance all likely contributed to the gains we saw overnight.

Apple's financials remain world-class

Apple’s growth story has come under threat in recent times, as concerns over slowing iPhone sales weighed on the outlook for the company.

Yet with the company’s solid third quarter release, such doubts may be beginning to dissipate, as Apple's services revenue continues to trend upward.

Speaking of the third quarter results, Apple’s CEO, Tim Cook said:

‘This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac.'

Apple’s Q3 revenue came in at $53.8 billion, a 1% increase year-over-year.

While iPhone sales declined 13% in that same period, coming in at $25.99 billion this, according to Tim Cook, represents a significant improvement in overall sales trends.

Moreover, earnings slightly beat analyst expectations: with Apple posting earnings per share (EPS) of $2.18 versus the average analyst estimate of $2.10 per share.

Even as iPhone sales slow, the company has started to realise strong growth in other areas of its business.

For example, year-over-year, Apple’s services revenue grew 12.6% – contributing a sizable $11.4 billion to the company’s top-line.

Although iPhone sales still accounted for a massive 48% of the company’s Q3 sales – investors are likely pleased to see Apple progressively diversify its revenue streams.

Mind you, as Apple Inc (All Sessions) expands its business, it continues to maintain its position as a blue-chip consumer tech stock with a world-class balance sheet.

Not only did the tech giant see healthy operating cash flow of $11.6 billion during the quarter, but as Apple’s CFO, Luca Maestri pointed out, the company:

‘Returned over $21 billion to shareholders during the quarter, including $17 billion through open market repurchases of almost 88 million Apple shares, and $3.6 billion in dividends and equivalents.’

Apple share price: Q4 outlook in focus

Besides slowing iPhone sales, investors have often worried that without legendary CEO Steve Jobs at the helm, that Apple Inc (All Sessions) would not be able to innovate – and therefore grow – like it had in the past.

Yet when speaking of the company’s future, Apple’s CEO, Tim Cook remains decidedly optimistic:

‘We’re confident about what’s ahead. The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products.’

From a financial perspective, the company pointed out that this ‘exciting period’ meant that in the fourth quarter the company is expecting to bring in ‘revenue between $61 billion and $64 billion.’

At the low and upper points of those estimates and compared to Q3 sales, that would imply top-line growth of between 13% and 18% in the fourth quarter.

Ultimately, even as headwinds from the US-China trade war persist and as iPhone sales continue to slow – year-to-date Apple’s share price has still been a strong performer, rising 38.5%.

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