Even if Apple Inc. (NASDAQ:AAPL) weren’t the biggest company in the world (as measured by market cap), its quarterly earnings reports would still arguably be the most-watched reports for any given earnings seasons. Not only are a wide swath of many other companies linked to Apple’s success, but AAPL stock itself is something of a barometer for the broad market.
Yet, the last few quarterly earnings announcements have also raised questions, not the least of which is whether or not iPhone-mania has run its course. The growth pace has been undeniably tapering off.
That’s going to be the hot button on Tuesday, after the close, when the Apple earnings report for its fiscal first quarter is due.
Apple Earnings Preview
As of the most recent look, Apple is expected to post earnings of $3.22 per share on revenue of $77.42 billion for the quarter ending in December. The company itself had guided for Q1 revenue of between $77 and $78 billion. That bottom line would be a tad lower than the $3.28 per share of AAPL stock reported for the same quarter a year earlier, though the top line would be up just a bit from the prior year’s first fiscal quarter tally of $75.87 billion.
Apple needs a strong showing on Tuesday. Although it has been a strong growth machine since unveiling the first iPhone a little over a decade ago, per-share profits have been lower on a year-over-year basis in each of the prior three quarters. Ditto for revenue.
AAPL stock investors have been patient thus far, giving CEO Tim Cook time to adjust to a maturing market. A shortfall and/or another quarter of shrinking numbers, however, may push those traders’ patience over the edge.
3 Things to Watch for AAPL
Not that Apple doesn’t have a myriad of things going on at any given time, but for the most part, investors tend to focus on what they perceive as the biggest three. The three items that will be doing most of the driving for AAPL stock after Tuesday’s report are (in no particular order)…
iPhone 7 sales
It’s the 800-pound gorilla in the room. Strong sales of the company’s flagship device can cure all other ills, but if sales of the company’s most recent iteration of the iPhone fall short, little else matters.
Expectations are widely varied on this front too. Cowen & Co. thinks Apple sold 58.5 million units of the iPhone 7 last quarter, while Drexel Hamilton believes Apple sold 76 million iPhones — not just the iPhone 7 — during its fiscal Q1. The overall consensus, though, is an average of 77.3 million units. Presumably most of those are the 7 and 7 Plus models.
Apps and Digital Content
While Apple used to be a hardware company that also happened to facilitate the purchase of smartphone apps, music and video media, digital content is increasingly becoming an important part of the revenue mix as saturation becomes a real issue.
The company doesn’t offer much in the way of expectations for how its revenue breaks down, but we do know that in the previous quarter, Apple enjoyed revenue of $6.3 billion for its “Services” division, which is mostly made up of its video, audio and apps arms. That was a 24% year-over-year improvement. That makes it the second-biggest category of product for Apple, though it’s still well behind the biggest — the iPhone.
AAPL is even mulling the creation of its own original television shows and movies, following in the footsteps of on-demand video rivals Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
Donald Trump Agenda
It remains to be seen to what extent, if any, it will be discussed within the Apple earnings report and conference call. Maybe it won’t come up at all, but there’s no denying AAPL is one of the more vulnerable companies to President Donald Trump’s policy plans.
Not only might a strict foreign worker and immigration policy limit Apple’s access to technical talent, but much-discussed tariffs on Chinese-made imports could start a trade war that leaves Apple right in the middle of it. Not only does Apple sell products to Chinese consumers, it relies on China to make many of the iPhone’s key components.
Bottom Line for AAPL Stock
With a trailing P/E of 14.5, Apple shares are priced fairly … maybe even undervalued. That’s apt to be a large part of the reason the pros are collectively rating AAPL a bit better than a “Buy” right now (leaning toward a “Strong buy.”) That optimism, though, is a bit suspicious in light of the lackluster results we’ve seen for the prior three quarters. Apple is going to have to outperform most expectations if the stock’s to build any further on the 34% gain it has mustered since May of last year.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
