Even a pandemic cannot stop Apple Inc. from breaking new records.
The smartphone giant is expected to post its first quarter with more than $ 100 billion in revenue on Wednesday, driven by strong initial performance from its new iPhone 12 line, as well as continued demand for Macs and iPads for remote work and school needs.
Apple AAPL,
The first quarter’s fiscal results will be the first to include sales from the iPhone 12 family of devices, which began rolling out in October. Although Apple faced supply restrictions on some models, the debut of Apple’s first 5G-enabled phones was undoubtedly the company’s most successful product launch in five years, in the opinion of Morgan Stanley analyst Katy Huberty.
Customers seem to be increasingly opting for more expensive iPhone models and more expensive storage configurations, which would increase the average selling price of the devices and help the company’s profit margin. Apple no longer provides unit sales metrics that shed light on its average sales prices, but the company generally offers some qualitative comments on which devices perform best.
Apple also recorded strong sales of Macs and iPads in the midst of the pandemic, with more people working and studying at home, and that momentum must have continued in the first fiscal quarter. The company launched new iPads at the end of last year, as well as its first computers with the company’s own custom chip.
Analysts also expect record performance for the company’s service category, although an area may also be unsustainable. Apple has done a good job of transitioning sales to its online store due to the COVID-19 crisis, but is “overly dependent on customers’ in-store purchases” to boost sales of its AppleCare insurance product, Huberty wrote.
What to expect
Earnings: Analysts tracked by FactSet expect Apple to earn $ 1.41 per share in the December quarter, down from $ 1.25 a year earlier. At Estimize, which receives estimates from hedge funds, academics and others, the average projection is US $ 1.45 per share.
Recipe: The FactSet consensus models a record $ 102.54 billion in revenue for Apple’s first fiscal quarter, up from $ 91.82 billion the previous year. Estimize’s consensus is $ 103.76 billion.
Analysts followed by FactSet model $ 59.58 billion in iPhone revenue for Apple, up from $ 55.96 billion a year earlier. Apple declined to give formal quarterly guidance on the latest earnings call, but chief financial officer Luca Maestri said at the time he expected iPhone revenue growth, although devices start selling later in the quarter than in the year. previous.
The FactSet consensus predicts $ 7.38 billion in Pad revenue, compared to $ 5.98 billion; $ 8.63 billion in Mac revenue, up from $ 7.16 billion; $ 15.17 billion in service revenue, up from $ 12.72 billion; and $ 11.49 billion in revenue for the wearables, home and accessories category, compared to $ 10.01 billion.
Stock movement: Apple shares gained after three of the last five earnings reports, and shares rose 72% last year, according to the Dow Jones Industrial Average DJIA,
which relies on Apple as a component, gained 7%.
Of the 41 analysts tracked by FactSet who cover Apple shares, 28 have buy ratings, 10 have retention ratings and three have sell ratings, with an average target price of $ 132.71.
What else to watch
Apple declined to give a quantitative financial forecast in each of its last three earnings reports because of the uncertainty related to the COVID-19 pandemic, and the trend is likely to continue this quarter.
“Given persistent uncertainty, we expect Apple to provide more ‘guidelines’ than ‘guidance’ for the second quarter,” wrote Bernstein analyst Toni Sacconaghi in a note to customers. In addition to the many unknowns surrounding the pandemic, the delay in the launch of the latest batch of iPhones by Apple means that the March quarter may be stronger than usual, since there were less than 12 “days of sale” before the iPhone.
Sacconaghi will also be on the lookout for comments on Apple’s ongoing dispute with application developers led by Epic Games, which sued Apple and claimed that the company’s App Store rules on in-app purchases are monopolistic. Apple has reduced commission rates for smaller developers who make up the bulk of those on the App Store, even though those developers don’t contribute much to Apple’s overall revenue from the platform.
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“We believe that Apple’s decision to cut commissions was politically astute, allowing the company to portray itself as a small business promoter, while superficially addressing the claim that its high app store fees are stifling competition and competition. innovation, ”wrote Sacconaghi, who has a market performance rating and a $ 120 price target for the stock. “It remains to be seen whether Apple will provide further comments on this matter; That said, we continue to believe that the legal risk to App Store revenue is low. “
Morgan Stanley’s Huberty is interested in the company’s momentum in China. She suspects the company is benefiting from Huawei’s weakness, citing data that suggests customers are switching from Huawei to Apple devices by the highest rate in 15 months. She has an overweight rating and a target price of $ 152 in the stock.
Goldman Sachs analyst Rod Hall echoed the argument about Huawei’s challenges, although he is concerned “that Apple has already started cutting iPhone orders” and that orders for the first half of 2021 suggest a move towards models with lower average selling prices.
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“These changes are consistent, in our opinion, with a normal iPhone redesign cycle, but they are not consistent with a super cycle,” he wrote. “As a result, we continue to expect replacement rates for the iPhone to resume their continued decline in 2021.” Hall has a sale rating and a target price of $ 85 for Apple shares.
Monness analyst Brian White of Monness, Crespi, Hardt & Co. highlights several new products and services that Apple could shed light on during the quarterly call. During the December quarter, the company began selling its AirPods Max headphones and launched a subscription fitness offering and a way to bundle discounted services.
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“In our opinion, the Apple portfolio was better positioned than ever in the recent holiday season, while product and service updates position the Apple Planet well in 2021,” he wrote. White has a purchase rating and a target price of $ 144 for Apple shares.