Apple Inc. (AAPL) reports earnings Tuesday, July 21, after the close. That’s when AAPL will tell the market how it did in its third fiscal quarter –and perhaps more important, will tell us how well or poorly the Apple watch did in its debut quarter.
The euphoria surrounding Apple earnings is palpable, as usual. In fact, once again AAPL stock analysts and observers are largely counting on the Apple earnings numbers to exceed the current average expectations.
And, history says that may not be a bad bet this time around either.
Apple Earnings Outlook
As of the latest look, analysts collectively expect Apple to have earned $1.80 per share on $49.22 billion in revenue for the company’s third fiscal quarter, which ended on June 30. Both figures are far better than their year-ago comparables. AAPL stock earned $1.28 per share in the same quarter last year, when it generated $37.43 billion in sales.
The degree of growth in store may look a little healthier than it actually is. In the second calendar quarter (third fiscal quarter) of 2014, Apple had nothing new or exciting to promote; most would-be buyers were holding out for the long-awaited unveiling of the iPhone 6, which finally hit the market on September 19th.
But for what it’s worth, expectations have been inching higher heading into the Apple earnings news scheduled for Tuesday afternoon, up from $1.76 just a month ago. Those upward revisions bode well for the stock. Also for what it’s worth, Apple rarely falls short on the earnings front. It’s only missed estimates in three of the past forty quarters.
AAPL Stock Hot Buttons
One of the challenges of trading a story-stock like AAPL is that the focal point of the story is forever changing… usually to the latest product launch. This time around isn’t apt to be any different. With that as the backdrop, there are three key themes to embrace about Apple stock right now.
Sales of the Apple watch may look lackluster. Not that the company ever planned on the device being a significant piece of the revenue pie, but the Apple Watch may well end up being alarmingly insignificant as it relates to the company as a whole. And going forward, it’s worth noting that Watch sales have fallen sharply since launch, so if numbers aren’t in line with expectations on this gadget they may never get there. Yes, sales of all devices often peak shortly after their launch, but the Apple Watch has seen an uncharacteristically big slowdown for an Apple product, which is cause for concern.
iPhone 6 may still go strong. On the other hand, sales of the latest iteration of the iPhone — the iPhone 6 — may be better than expected considering it’s been on the market for more than half a year. UBS analyst Steven Milunovich’s review iPhone buying data tells him the average selling price for the new iPhone in Apple’s fiscal Q3 will be closer to $660 apiece versus the consensus estimate of $636, as buyers have opted for higher-end features like more memory. If the Apple Watch is insignificant, the iPhone is even more important than ever.
New offerings in focus. While sales of the iPhone remain relatively strong, the introduction of the new Apple TV service and the reintroduction of the iPod — and by extension, the revamped music offering — could make the market overlook any bumps in the road it hit last quarter. Neither new (or renewed) device will be part of the fiscal Q3 numbers to be passed along in the Apple earnings update due Tuesday after the close, but inasmuch as investors are always looking ahead, these three products will largely shape expectations for the current quarter.
Again, getting a feel for the rhetoric is half the battle of becoming and remaining an Apple stock owner.
Bottom Line for Apple Stock
Finding the good and bad about Apple stock iproper perspective. And in my view, AAPL stock on its worst day is still better than most other stocks on their best day — with Apple’s biggest threat being its own history.
Be that as it may, while each Apple product launch seems less and less “splashy” than the last, Tim Cook is offsetting that fading pizzazz with a larger base of products to sell.
More than that, the advent of pay-television and a subscription-based music service suggests Apple is moving to a revenue model that’s more stable than the company mustered when it was primarily an iPhone manufacturer. That cash flow actually makes the company an even more formidable force to be reckoned with.
Tuesday’s report may offer a brief glimpse of that idea.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.