Apple Q3 Earnings Beat Estimates, Services Drive Top-Line Growth

Apple AAPL reported third-quarter fiscal 2025 adjusted earnings of $1.57 per share, which beat the Zacks Consensus Estimate by 10.56% and increased 12.1% year over year.

Net sales increased 9.6% year over year to $94.04 billion and beat the Zacks Consensus Estimate by 5.75%.

Overall, product sales (70.8% of sales) climbed 8.2% year over year to $66.61 billion. Services revenues grew 13.3% year over year to $27.42 billion and accounted for 29.2% of sales. The figure beat the consensus mark by 1.74%.

Apple TV+ viewership soared double-digit year over year in the fiscal third quarter. Both paid accounts and paid subscriptions grew double digits year over year. The company has more than 1 billion paid subscribers across the Services business.
 

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote

Apple shares were up almost 2% in pre-market trading following the results. Year to date, AAPL shares have dropped 17.2%.

Apple’s Top Line Rides on Strong iPhone and Mac Sales

iPhone sales increased 13.5% year over year to $44.58 billion and accounted for 47.4% of total sales. iPhone sales beat the Zacks Consensus Estimate by 9.78%. Apple saw iPhone sales growth in every geographic segment and double-digit growth in emerging markets, including India, the Middle East, South Asia and Brazil. Strong demand for the iPhone 16 family drove sales.

Mac sales of $8.05 billion increased 14.8% year over year and accounted for 8.6% of total sales. The figure beat the Zacks Consensus Estimate by 12.33%. Solid demand for M4 Macbook Air drove top-line growth. Apple saw double-digit sales growth in emerging markets as well as double-digit growth in both the number of upgraders and new Mac customers. 

iPad sales of $6.58 billion decreased 8.1% year over year and accounted for 7% of total sales. The figure lagged the Zacks Consensus Estimate by 2.94%. 

Wearables, Home and Accessories sales decreased 8.6% year over year to $7.4 billion and accounted for 7.9% of net sales. The figure beat the consensus mark by 0.85%.

Non-iPhone revenues (iPad, Mac and Wearables) decreased 1.1% year over year on a combined basis.

Apple’s China Sales Recover, Japan and the Rest of Asia Jump

Greater China sales increased 4.4% year over year to $15.37 billion and accounted for 16.3% of total sales. Japan revenues increased 13.4% year over year to $5.78 billion and accounted for 6.1% of total sales. Rest of Asia sales soared 20.1% year over year to $7.67 billion and contributed 8.2% of total sales.

While Europe’s sales grew 9.7% to $24 billion, Americas’ sales were $41.2 billion, up 9.3%. Europe and Americas accounted for 43.8% and 25.5% of total sales, respectively.

Apple’s Gross & Operating Margins Expand Y/Y

The gross margin of 46.5% expanded 20 basis points (bps) on a year-over-year basis. The gross margin contracted 60 bps sequentially due to tariffs. Apple incurred $800 million in tariff-related costs in the reported quarter.

Products’ gross margin contracted 140 bps sequentially to 34.5% due to unfavorable mix and tariff. Services’ gross margin was 75.6%, down 10 bps sequentially.

Operating expenses rose 8.3% year over year to $15.52 billion due to a 10.7% increase in research & development expenses and a 5.2% improvement in selling, general & administrative expenses. 

Operating margin expanded 40 bps on a year-over-year basis to 30%.

Apple’s Balance Sheet Remains Strong

As of June 28, 2025, cash & marketable securities were $132.99 billion compared with term debt of $91.78 billion. Apple had cash & marketable securities worth $132.92 billion compared with term debt of $92.2 billion as of March 29, 2025. 

Including commercial paper of $9.92 billion, total debt was $101.7 billion as of June 28.

Apple returned nearly $27 billion in the reported quarter through dividend payouts ($3.9 billion) and share repurchases ($21 billion).

Apple’s Q4 Revenues to Grow Amid Tariff Headwinds

Apple expects the September quarter’s (fourth-quarter fiscal 2025) net sales to grow mid to high single digits on a year-over-year basis. The company expects the Services year-over-year growth rate to be similar to that of the June quarter.

Gross margin is expected to be 46-47% in the fourth quarter of fiscal 2025, including a tariff impact of $$1.1 billion. Operating expenses are expected to be between $15.6 billion and $15.8 billion.

Apple plans to spend $500 billion in the United States over the next four years and expects to source 19 billion chips during calendar year 2025.

The Zacks Consensus Estimate for fourth-quarter fiscal 2025 revenues is pegged at $96.43 billion, suggesting 1.58% growth over the figure reported in the year-ago quarter. The consensus mark for fourth-quarter fiscal 2025 earnings is pegged at $1.61 per share, indicating a 1.83% year-over-year decline.

Zacks Rank & Stocks to Consider

Currently, Apple carries a Zacks Rank #3 (Hold). 

Arista Networks ANET, Bumble BMBL and DoorDash DASH are top-ranked stocks in the broader Zacks Computer & Technology sector. Each of the three stocks sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks is scheduled to report its second-quarter 2025 results on Aug. 5. Both Bumble and DoorDash are scheduled to report their respective second-quarter 2025 results on Aug. 6.

In terms of share price movement, DoorDash and Arista Networks have returned 48.5% and 11.5%, respectively, year to date. Bumble shares have dropped 4.5% over the same timeframe.

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This article originally published on Zacks Investment Research (zacks.com).

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