Apple Expected to Report Services Record as Stock Hits All-Time Highs
January 28 2020 - 5:59AM
Dow Jones News
By Tripp Mickle
Apple Inc. is scheduled to report results for its fiscal first
quarter after the market closes Tuesday. Here's what you need to
know.
EARNINGS FORECAST: Analysts on average expect profit of $4.54 a
share, according to a survey by FactSet. Apple hasn't provided
profit guidance for the quarter but in October said it expected a
gross margin of approximately 37.5% to 38.5%.
REVENUE FORECAST: Analysts expect $88.41 billion, according to
FactSet, compared with $84.31 billion a year earlier. In June,
Apple said it expected revenue of between $85.5 billion and $89.5
billion for the quarter.
What to Watch
Bright Side of the Road: Apple won over Wall Street with 17%
growth in revenue from its services business during the fiscal year
ended in September. Its success increasing sales of apps,
streaming-music subscriptions and mobile payments gave many
investors confidence that the company has found life beyond the
iPhone.
Now, investors want more. Apple introduced a subscription-TV
service in November for $4.99 a month. Analysts predict sales of TV
subscriptions helped lift Apple's year-over-year services sales
growth to 20% during the December quarter from 19% in the prior
year. Investors will be listening for insight into the number of
subscribers Apple added for the TV service, as well as for its
videogame service and credit card.
Learn to Listen: AirPods have become the little engine that
could for a wearables business that also includes iPods and
smartwatches. Apple hasn't broken out sales results for AirPods,
but the wireless earbuds accounted for about a quarter of revenue
last fiscal year, nearly doubling to $6 billion in sales, according
to Bernstein Research.
With Apple releasing a pricier, $250 model in October, analysts
predict AirPods will be a major contributor to what could be a
record December quarter for Apple. Bernstein's Toni Sacconaghi
believes Apple sold $3.5 billion to $4 billion in AirPods during
the period. He called the device, which made its debut in 2016,
"the most underappreciated part of Apple's business today."
Carry That Weight: Apple's surging share price has some
investors as focused on the revenue the company expects to earn in
the current quarter as on the earnings it reports in the December
period. Apple's trailing price-to-earnings ratio has jumped to
nearly 27 times earnings, according to FactSet, a sizable increase
from the 16-times-earnings average over the past five years.
The dramatic change in the multiple has investors asking whether
the company's shares can continue to rise. Analysts predict a
record $62 billion in revenue for the current quarter, and anything
beyond that could give investors confidence that Apple shares have
more runway.
Tumbling Dice: After years of raising iPhone prices, Apple last
year lowered the price of its new, introductory model by $50. It
was a calculated gamble that the company could sacrifice money on
each iPhone 11 sold by increasing the volume of handsets shipped.
The results of that strategy will be evident in Apple's iPhone
results.
In the U.S., the lower cost iPhone 11 accounted for about 40% of
the company's handset sales, according to a survey of iPhone buyers
by Consumer Intelligence Research Partners. Apple will need to
increase unit sales by as much as 10% to offset an 8% decline in
the average-selling price of iPhones, according to Bernstein
Research.
Investors are also watching for insight into the potential
launch of a low-cost iPhone in March. Apple has been working on an
update to the iPhone SE introduced in 2016 at a price of $399. Its
revenue projections for the current quarter could signal that it
plans to launch that phone in March, as analysts predict.
Lively Up Yourself: China has weighed on Apple for more than a
year, and the spread of coronavirus creates a new challenge to the
company's business. The Chinese government has said employees in
Shanghai and Suzhou, a manufacturing hub, aren't allowed to return
to work before Feb. 9, a week longer than the Lunar New Year
holiday, a blow to economic activity. Apple lists at least two
suppliers in Wuhan, the epicenter of the virus, and more than 60 in
Suzhou.
The spread of coronavirus from China fueled a broad selloff in
markets Monday, and Apple was among Western companies that felt the
effects. Investors will be looking for details on how China's
efforts to contain the illness might affect Apple operations.
China's weak economy hobbled Apple for much of last year,
undercutting smartphone sales. The sale of apps, smartwatches and
other products helped improve results in China in the second half
of the fiscal year ended in September, but the coronavirus
threatens now to undermine those gains.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
January 28, 2020 05:44 ET (10:44 GMT)
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