Consumer tech giant Apple Inc. (NASDAQ:AAPL) is set to report its fiscal first-quarter results after the market closes Tuesday, and it should be a good one … perhaps even a record-breaking one.
Q1 was the first full quarter in which the iPhone 6 and the iPhone 6 Plus were being sold, and as most long-term owners of AAPL stock know, Apple earnings reports generally consist of a nice “beat” of sales and earnings estimates.
On the other hand, with a 44% gain since the end of 2013, could the current price of AAPL stock have already priced in any potential good news that might be unveiled in Tuesday’s announcement?
It’s a matter worth exploring.
Apple Earnings: What to Expect
Apple is projected to have driven $67.5 billion in revenue last quarter, which would represent a 17% improvement on the year-ago figure. Earnings are expected to reach $2.59 per share of AAPL stock, up 25% from the first quarter of the previous year.
Statistically speaking, betting on a beat would be a good wager. Apple has topped earnings estimates in eight straight quarters, and with the exception of a short-lived stumble in 2012, made a habit of topping expectations before then as well.
As for the driver of the big quarterly improvements, yes, the aforementioned iPhone 6 really can lead to massive sales and profit increases. Analysts collectively believe Apple sold about 70 million iPhones in the prior quarter. That’s on top of the few million that were sold between Sept. 19 (when it first launched) and Sept. 30 (when the quarter ended). It would be a record.
For perspective, the company sold 51 million iPhones — mostly the iPhone 5 — in the comparable quarter a year earlier, which was also a record at the time. Although at some point consumers will view their current iPhone as “good enough” and not upgrade it to the next-generation version, it clearly hasn’t happened yet. Simultaneously, Apple continues to penetrate new markets (read: China) where it doesn’t have to pull older iPhones out of consumers’ hands to sell them newer ones.
Things for AAPL Stock Investors to Think About
While the numbers to be presented Tuesday are interesting, they’re also history. By Wednesday morning the only information that will truly matter are the forward-looking numbers and how the company is going to reach those targets. To that end, there are some clear issues that owners (current or would-be) of AAPL stock might want to pose to themselves or even ask the company during the Apple earnings call. In no particular order…
- iWatch Battery Life: In retrospect, Apple probably didn’t handle the timing of the iWatch launch as well as it could have. It has been relatively confirmed over a year now, was unveiled in September, but won’t go on the market until later this year. That’s just too much time to sustain the hype all the way through to the purchase, but it also gives the public a lot of time to spot flaws and drawbacks. A big one popped up last week — a relatively short battery life. Though it’s unfair to expect the watch’s battery to last as long as a smartphone battery does (a phone battery is about the same size as the entire iWatch is), consumers don’t care about fair. This may sour the public on the technology before it hits the market. Apple needs to address this, one way or another.
- A Slowing Upgrade Cycle: It’s yet to be an impasse, but with each new iPhone and each wave of market penetration, Apple takes one step closer to the point in time when the next version of the famed smartphone just isn’t significantly better than the one they’re currently using. There’s no “solution” per se, but it’s a challenge the company must face someday. It must start thinking about it now, though. One response may be the creation of a whole new category of products, like the iPhone was when it first debuted in 2007.
- Slowing iPad Sales: While the pace of iPhone sales still may be acceleration, the pace of iPad sales is clearly decelerating. The iPad hasn’t prevented the overall top and bottom lines from growing, but it has been a sore spot with owners of AAPL stock who have come to expect nothing less than greatness in all facets of Apple earnings.
Bottom Line for AAPL Stock
Like any company, Apple must remain sharp to stay competitive. On the flip side, perhaps more so than for any other organization, the market generally does whatever it can to put a positive spin on anything and everything Apple does. It would take clear and certain disaster for AAPL stock to fall out of the market’s good graces when Apple earnings are posted Tuesday.
In other words, those who are betting against the company are fighting the tide.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
