Apple (AAPL) stock has gone on an impressive run, rising some 30% year to date, almost quadrupling the 7.7% rise in the S&P 500 index. Its shares have returned about 7% just in the past thirty days, pushing the tech giant past a $2.5 trillion valuation. Is it time to take profits or can its momentum continue?
These answers will be more clear when the company reports second quarter fiscal 2023 earnings results after the closing bell Thursday. It appears the tech giant has its mojo back after licking its wounds in 2022. Even with these strong returns, it’s hard to ignore the many catalysts that can keep shares rising. Last week, in partnership with Goldman Sachs (GS), Apple announced its entry into the banking system by offering a high-interest (4.15%) savings account for Apple Card holders.
Also as part of its growing streaming investments, during the quarter Apple begun a 10-year partnership with Major League Soccer, launching MLS Season Pass which gives soccer fans access to every live MLS regular season game as well as the playoffs and MLS Cup. Let’s not forget Apple’s new line of hardware products such as the new MacBook Pro which are powered by the company’s new M2 Pro and M2 Max chips. These models offer not only robust performance, but they also use less energy which elongates battery life.
Inflation continues to drive higher operating expenses for Apple, which remains a headwind for its profit margins. While iPhone sales generate a sizable portion of revenues, Apple’s collective high-margin Services businesses continue to grow. It remains to be seen if the Services segment, which generated 70%+ margins in 2022, can power the company through any near-term inflationary headwinds.
In the three months that ended March, Wall Street expect the Cupertino, Calif.-based tech giant to earn $1.43 per share on revenue of $92.98 billion. This compares to the year-ago quarter when earnings came to $1.52 per share on revenue of $97.28 billion. For the full year, ending in October, earnings are expected to decline 2.6% year over year to $5.95 per share, while full-year revenue of $387.92 billion will decline 1.6% year over year.
The tech giant has benefited from, among other things, the re-opening of China, its second-largest market. However, when it comes to the U.S., there is still concern regarding the strength of the consumer amid rising inflation and a possible recession. This continues to raise the question whether the company, which is highly reliant on iPhone sales, can ever return to its glory days of high growth.
Elsewhere, another question is if Apple’s Services segment will grow fast enough to make up for any weakness in hardware, driven weak worldwide PC sales. Worldwide PC shipments reached 65.3 million units in Q4, falling close to 30% year over year. For the year, PC shipments declined more than 16% year over year. These weaknesses were felt in Q1 when Apple’s Mac revenue of $7.74 billion declined 28% year over year to $7.74 billion.
Meanwhile, Q1 iPhone revenue of $65.78 billion declined 8% year over year to $65.78 billion. The weakness led to a quarterly miss on both the top and bottom lines, with the company earnings an adjusted EPS of $1.88 which missed by 7 cents, while Q1 revenue of $117.15 billion declined 5.5% year over year, missing estimates by $4.5 billion.
It wasn’t all bad news, however. Apple’s overall install base crossed 2 billion active devices, hitting all-time high for all major product categories. What’s more, Services revenue, which includes subscriptions to products such as Apple TV+, iCloud storage and Apple Music, rose 6.3% year over year, reaching a record of $20.76 billion. On Thursday investors will be watching closely to see whether (or how) inflation might have impacted spending on Apple’s pricey hardware.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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