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Apple (AAPL) to Report Q1 Earnings: What's in the Cards?

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Apple (AAPL - Free Report) is set to report first-quarter fiscal 2020 results on Jan 28.

For the quarter, revenues are projected between $85.5 billion and $89.5 billion. The Zacks Consensus Estimate for revenues is pegged at $87.74 billion, indicating growth of 4.1% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for earnings is currently pegged at $4.53 per share, up 0.4% over the past 30 days. The figure indicates 8.4% growth from the figure reported in the year-ago quarter.

Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 3.6%.

iPhone Sales Likely to Decline

Apple’s fortunes are tied to iPhone, which is by far its biggest revenue contributor. The device accounted for 52.1% of net sales in the last reported quarter, wherein sales declined 9.2% year over year to $33.36 billion that beat the consensus mark of $32.30 billion.

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise

Apple Inc. price-eps-surprise | Apple Inc. Quote


Apple’s iPhone unit sales are expected to have been muted due to stiff competition from Chinese handset makers and increasing consumer preference for local brands, particularly Huawei, post the U.S. restriction on the Chinese tech giant.

The nationalistic buying trend most likely continued in Greater China in the fourth quarter of 2019 (Apple’s fiscal first quarter), which is expected to have hurt iPhone’s top line.

Notably, per Gartner’s latest report on global smartphone demand in third-quarter 2019, Samsung and Huawei had a market share of 20.4% and 17%, respectively, while Apple had a market share of 10.5%.

Nevertheless, strong customer response for iPhone 11 and 11 Pro devices owing to better battery life and improved image quality, lowered iPhone prices in China (starting prices lowered by $50) and increasing traction of trade-in programs are expected to have positively impacted iPhone shipments in December 2019.

Per data from the China Academy of Information and Communication Technology, cited by Bloomberg, iPhone shipments in China grew 18.7% year on year in December to roughly 3.18 million units.

The Zacks Consensus Estimate for iPhone sales currently stands at $51.39 billion, indicating a 1.1% decline from the year-ago quarter’s reported figure.

Solid App Store Sales to Aid Services

The Services segment has become the new cash cow for Apple. The increasing popularity of the App Store and an expanding subscriber base of Apple Music and Apple News are likely to have benefited the top line in first-quarter fiscal 2020.

On Jan 8, 2020, Apple announced that its App Store customer spending totaled $1.4 billion between Christmas Eve and New Year’s Eve, up 16% from the same period in 2018.

Moreover, per a Sensor Tower Report, Apple’s App Store brought in $54.2 billion in sales, up 16.3% year over year, compared with Alphabet (GOOGL - Free Report) Google’s Play Store sales of $29.3 billion, up 18.1% year over year, in 2019.

App Store’s growth can be attributed to a strong developer base and the richness of the apps. Additionally, Apple’s endeavor to broaden its ecosystem through partnerships with the likes of Samsung (for iTunes) and Amazon (AMZN - Free Report) is a positive for the Services segment.

Further, Apple Music’s availability on Amazon Echo devices and Fire TV is helping it expand footprint and compete better with Spotify (SPOT - Free Report) .

Although Sweden-based Spotify is leading at the moment, Apple Music is catching up fast. The service now has more than 60 million subscribers, trailing Spotify’s 100-million premium subscriber count.

Additionally, as compared to Spotify’s offerings of 500,000 shows, Apple’s podcast service now offers more than 800,000 shows in 155 countries.

Moreover, Apple News draws more than 100 million monthly active users in the United States, the U.K., Australia and Canada. The company offers a paid version of its news service called Apple News+ for $9.99 per month.

The consensus mark for Services revenues currently stands at $12.30 billion, implying 23.2% growth from the year-ago quarter’s reported figure.

Quarterly News to Watch

On Nov 1, Apple launched Apple TV+ on the Apple TV App for $4.99 per month or free with a new Apple Device or Apple Music Student plan.

On Nov 13, Apple launched a 16-inch MacBook Pro that features a 16-inch Retina Display, the latest 8-core processor, up to 64GB of memory, next-generation graphics with up to 8GB of VRAM and a new advanced thermal design. The device also includes a six-speaker sound system, longer battery life, Touch Bar, Touch ID, the Force Touch trackpad and the Apple T2 Security Chip.

On Dec 18, Apple, Amazon and Google announced the formation of a new working group — Connected Home over IP Project — that plans to develop and promote the adoption of a new, open standard for smart home devices. The group also includes Zigbee Alliance, the maker of another smart home protocol, and its board members including Ikea, Samsung SmartThings and Signify, the company behind Philips Hue.

Zacks Rank

Apple currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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