Apple (AAPL) to Report Q3 Earnings: What's in the Offing?

Apple AAPL is set to report third-quarter fiscal 2020 results on Jul 30.

The company didn’t provide any guidance, given the uncertainty around the impact of the coronavirus pandemic. However, the company expects forex, due to U.S. dollar appreciation, to hurt revenues by $1.5 billion year over year.

Moreover, on a year-over-year basis, Apple expects third-quarter iPhone and Wearables business revenues to be worse than the second quarter. On the contrary, iPad and Mac revenues are expected to improve.

Services are expected to have benefited from strong usage of App Store, Video, Music and cloud services. However, lower economic activity is anticipated to have hurt AppleCare and advertising.

The Zacks Consensus Estimate for revenues is currently pegged at $51.13 billion, indicating a decline of 5% from the year-ago quarter’s reported figure.

Apple Inc. Price and EPS Surprise


Apple Inc. Price and EPS Surprise

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

Moreover, the consensus mark for earnings is currently pegged at $1.99 per share, having increased 1.5% over the past 30 days and indicating an 8.7% decline from the figure reported in the year-ago quarter.

Notably, the company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.61%.

Let’s see how things are shaping up for the upcoming announcement.

Sluggish China to Hurt iPhone Sales

Apple’s fortunes are heavily reliant on iPhone, which is by far its biggest revenue contributor. The device accounted for 49.7% of net sales in the last-reported quarter wherein sales declined 6.7% year over year to $28.96 billion.

Apple’s third-quarter iPhone unit sales are expected to have been muted due to sluggish handset demand in China, which accounted for 16.2% of the company’s fiscal second-quarter sales.

Per a Reuters report, in June, smartphone sales in China dropped 15% year over year following a 10% decline in May.

According to CNBC, which cited a report from Shanghai-based CINNO Research, Apple’s iPhone unit sales declined 7.7% in May on a monthly basis. The iPhone maker witnessed a 160% jump in iPhone unit sales in April.

Markedly, Apple’s market share in China shrank over the past several years as local Android brands steadily launched higher-end phones.

The iPhone maker endures intensified competition from rivals presently releasing 5G devices compatible with China’s enhanced telecommunications networks while Apple is yet to launch an iPhone with 5G capability.

Further, closure of Apple stores due to coronavirus is expected to have hurt iPhone sales. Notably Apple Stores in the United States began reopening from May 11. However, resurgence of coronavirus infections compelled the company to close its stores in select locations in June.

The Zacks Consensus Estimate for iPhone sales currently stands at $20.29 billion, indicating a 22% decline from the year-ago quarter’s reported figure.

Apple Music & App Store to Aid Services

The Services segment became the new cash cow for Apple, which currently has a Zacks Rank #3 (Hold). The increasing popularity of the App Store and an expanding subscriber base of Apple Music, Apple Podcasts and Arcade gaming are likely to have benefited the top line in third-quarter fiscal 2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apple currently has more than 515 million paid subscribers across its Services portfolio. App Store continues to grab attention of prominent developers from around the world, helping the company offer exciting new apps that drive traffic.

Additionally, Apple’s endeavor to broaden its ecosystem through partnerships with Amazon AMZN is a positive for the Services segment. Further, Apple Music’s availability on Amazon Echo devices and Fire TV is helping it expand its footprint and compete better with Spotify SPOT and Alphabet’s GOOGL YouTube Music.

Moreover, Apple Pay witnessed surge in activity as quarantined customers used digital and contactless tools to handle their financial activities. The card is now accepted by retailers like Taco Bell and Target. Apple Pay is now available in more than 50 markets. Further, the easy synchronization of Apple Pay with Apple Watch remains a major positive.

The consensus mark for Services currently stands at $13.13 billion, indicating 14.6% growth from the year-ago quarter’s reported figure.

Key Q3 Development- Antitrust Probe on App Store

Apple’s legal woes over App Store increased in the to-be-reported quarter. The European Commission has opened two antitrust investigations into Apple’s App Store and Apple Pay practices over concerns that the company’s way of doing business hurts consumers by limiting choice and innovation and keeping prices high.

The Commission opened an investigation into the mobile App Store over concerns that Apple forces developers to use the company's own in-app purchasing system, which charges them a 30% commission. It also restricts them from letting iPhone and iPad users know about other cheaper ways to pay for digital services like music subscriptions.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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