Tech giant Apple Inc (NASDAQ:AAPL) is due to release its first quarter earnings after the US close on Wednesday, an announcement that will be keenly eyed for how the iPhone maker is adapting to face both the future and current events.
The company’s shares have mounted an impressive recovery over the last year following a profit warning amid a slowdown in iPhone sales from its critical Chinese market, rising around 100% in the intervening months.
AJ Bell’s Russ Mould says the rise will have also raised the bar of expectations for the impending figures, saying that analyst profit forecasts have “barely changed over the last year”.
“The shares have re-rated thanks to Apple’s lavish cash return programmes, via dividends and share buybacks, and a greater focus on the Services and Wearables, Home and Accessories operations as iPhone sales continue to fall”, Mould said.
Market estimates are currently predicting earnings per share (EPS) for the first quarter of US$4.51, up from US$4.18 a year ago, which would represent the second consecutive quarter of year-on-year growth after a two-quarter decline in the middle of last year.
Analysts will also be on the lookout for any predictions for the second quarter, with current consensus estimating EPS of US$2.82, a 14% increase on the prior year.
Apple’s cash balance will be another target following the US$14bn paid out in dividends last year alongside US$67bn spent on share buybacks.
Streaming in the spotlight
The release will also be the first set of figures since the company launched its AppleTV+ streaming service at the start of November in an attempt to muscle in on a market dominated by Netflix Inc (NASDAQ:NFLX) and Amazon Inc’s (NASDAQ:AMZN) Prime service.
Markets.com’s Neil Wilson said there had been “decent indications” that Apple’s shift away from hardware towards a more services-focused business was “in full swing”, although Apple TV+ could cause some strain on margins as the service funds content to bulk up its library to attract customers.
The performance of the newly minted streaming platform may also become critical with growth in the wider services division have pulled back slightly in recent quarters and could potentially slow further.
Coronavirus threat looms
A more recent occurrence that could weigh on Apple’s figures in the current coronavirus outbreak across China, which has the potential to dent demand in one of the firm’s most crucial markets as Chinese shoppers stay away, either voluntarily or as a result of government quarantines.
“Apple may have to revise its Q2 forecasts for Greater China lower – this could be an important steer for the broader market in terms of the outbreak’s impact”, Wilson said, adding that the share price could be dented despite strong first quarter earnings if the outbreak leads to softer guidance.
But holiday quarter could still be a record-breaker
Despite the coronavirus troubles, Apple could still manage to deliver record quarterly revenues thanks to the festive period, with Chinese iPhone sales set to compare more favourably with the lacklustre year-ago period.
There could also be good news from the company’s wearables business, which in the fourth quarter of last year saw sales jump 54% to US$6.5bn and is increasingly taking a larger slice of total sales.
Overlooking all of these developments will be the roll-out of 5G mobile internet, widely expected to spark a ‘super-cycle’ of hardware refreshes that could boost sales.
The trend was highlighted by a Wedbush note last week, where analysts said the market was failing to comprehend the “magnitude of the 5G upgrade cycle” and, as a result, Apple’s growth prospects.
Wedbush currently rates Apple with a price target of US$400, the highest among Wall Street’s analysts.
Apple’s shares were 0.9% higher at US$311.85 in pre-market trading in New York on Tuesday.