Investing.com -- Apple (NASDAQ:AAPL) reported fiscal third-quarter results that topped estimates as strength in its services business helped offset iPhone sales that fell short of estimates.
Still, Apple shares were down nearly 2% in premarket Friday trading.
Apple reported EPS of $1.26 on revenue of $81.80B, beating estimates for $1.19 and $81.73B, respectively.
iPhone revenue, which makes up nearly half of total revenue, fell to $39.67B from $40.67B a year earlier, missing estimates of $39.91B.
Gross margin of 44.5% for the quarter topped estimates of 44.2%, as the tech giant's higher-margin services business delivered record growth.
Revenue from Apple’s services business including Apple News, Apple TV+, and iCloud, grew to $21.21B in Q3 from $19.60B a year earlier, and topped estimates of $20.76B.
"We had an all-time revenue record in Services during the June quarter, driven by over 1 billion paid subscriptions, and we saw continued strength in emerging markets thanks to robust sales of iPhone," Apple CEO Tim Cook said.
iPad revenue fell by 20% to $5.79B year-on-year in Q3 , missing Wall Street estimates of $6.41B. Wearables, home, and accessories grew 2.5% to $8.28B year-on-year in Q3.
Apple shares were further hit after CFO Luca Maestri said on the earnings call that the company expects September quarter sales results to be similar to its June quarter performance. As sales fell 1% YoY in FQ3, this commentary would imply FQ4 sales of $89.25B, nearly $1B lower than the consensus.
On a more positive note, Meastri said that Apple expects iPhone and services YoY performance to accelerate from the June quarter.
On the back of this expected acceleration, as well as the gross margin expansion, Citi analysts opened a 90-day positive catalyst watch on AAPL stock.
"Post Jun-Q earnings through new Phone launch the stock historically outperformed NASDAQ 5 out 7 times and S&P 500 all 7 times, or 8% on average since 2016," they said in a note.
On the other hand, BofA analysts remain sidelined.
"We remain Neutral as positive catalysts of new product introduction and stable iPhones are offset by a potentially weaker consumer spending environment," they wrote.
"The guidance suggests typical launch timing for iPhones but with the backdrop of a weak US smartphone market we think it’s unlikely that iPhone rev significantly re-accelerates."
(Additional reporting by Senad Karaahmetovic)