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Warren Buffett's Apple Rises on Strong 2nd-Quarter Revenue Growth

Apple Inc. (NASDAQ:AAPL), the largest holding of Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), said on Tuesday that revenues for the quarter ending June 30 set a new record for the fiscal third quarter, driven by continued strength in the company's services and wearables businesses.

The Cupertino, California-based tech giant reported net income of $10.044 billion, or $2.18 in diluted earnings per share, compared with net income of $11.519 billion, or $2.34 in earnings per share, in the prior-year quarter. Revenues of $53.8 billion outperformed the Refinitiv consensus estimate of $53.39 billion, while earnings outperformed the consensus estimate by 8 cents per share.

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Company accelerates service and wearables revenue growth to new highs

CEO Tim Cook said the combination of Apple's services and wearables business is "approaching the size of a Fortune 50 company," with wearables larger in size than approximately 60% of Fortune 500 companies. Apple Watch revenues set a new June record as the company introduced new developments to the WatchOS platform and the Watch's own App Store.

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Cook said the company posted a strong June quarter, driven by several factors, including an all-time record of $11.455 billion in Services revenues. Cook said during the earnings call that strong growth in all geographic regions, including Greater China, contributed to the performance in Services. App Store sales in Greater China increased in the double digits due to government stimulus and strong customer demand for services like Apple Care and Apple Pay. Additionally, Apple TV monthly views increased 40% in May as the platform integrated content from over 150 providers and allowed consumers to pay for just the channels they wish to have.

Apple Chief Financial Officer Luca Maestri said the company is "on track" to double its services business from that of fiscal 2016 by 2020.

Company announces acquisition of Intel's modem business

Cook also announced Apple acquired Intel Corp.'s (INTC) modem business earlier in July for $1 billion, representing "the second-largest acquisition in terms of dollars and the largest acquisition in terms of staff." The CEO said the acquisition seeks to grow the company's talent portfolio and expedite its products and offerings, including 5G.

Shares soar as company outperforms top-line estimates

The stock closed at $208.78, down 90 cents, or approximately 0.43%, from Monday's close of $209.68. Despite this, shares of Apple increased over 4% in aftermarket trading as the company topped revenue and earnings estimates for the quarter. Meanwhile, the Dow Jones Industrial Average closed at 27,198.02, down 23.33 points, or approximately 0.086%, from the previous close of 27,221.35.

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GuruFocus ranks Apple's profitability 8 out of 10 on several positive indicators, which include a three-star business predictability rank and operating margins that are outperforming 94.58% of global competitors despite contracting approximately 1.9% per year on average over the past five years.

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Berkshire has not released its second-quarter portfolio as the deadline is 45 days after quarter-end. As of the March quarter, Buffett's conglomerate owned 249,589,329 shares, dedicating 23.77% of its equity portfolio to the position.

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Other gurus riding Apple's strong profit momentum include Ken Fisher (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Spiros Segalas (Trades, Portfolio).

Disclosure: No positions.

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This article first appeared on GuruFocus.