Apple (AAPL) to Report Q4 Earnings: What's in the Offing?

Apple AAPL is set to report fourth-quarter fiscal 2020 results on Oct 29.

The company didn’t provide any guidance, given the uncertainty around the impact of the coronavirus pandemic. However, the company expects fiscal fourth-quarter iPhone sales to benefit from strong demand for iPhone SE.

Moreover, Apple expects iPad and Mac to post strong year-over-year growth. Services are expected to benefit from strong usage of App Store, video, Music and cloud services. However, AppleCare is expected to face tough year-over-year comparisons.

The Zacks Consensus Estimate for revenues is currently pegged at $63.72 billion, indicating a decline of 0.5% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for earnings is currently pegged at 69 cents per share, unchanged over the past 30 days and indicating a 9.2% 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 being 16.4%.

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise

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

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

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 fourth-quarter fiscal 2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apple currently has more than 550 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 YouTube Music.

During fiscal fourth quarter, Apple announced two new live global radio offerings on Apple Music. Beats 1 was made available, renamed as Apple Music 1. Two additional radio stations, Apple Music Hits, celebrating favorite songs from the ’80s, ’90s, and 2000s, and Apple Music Country, spotlighting country music, were also launched.

Moreover, Apple Pay is expected to have witnessed surge in activity as quarantined customers used digital and contactless tools to handle their financial activities. Notably, in June, the company launched Apple Card Monthly Installments for more products in its U.S. stores. The program offers 0% interest to customers buying Apple devices.

Further, during the to-be-reported quarter, Apple introduced several new features for Apple News and Apple News+, including audio stories of some of the best feature stories from Apple News+.

The company also announced the availability of a CBS All Access and SHOWTIME bundle for only $9.99 per month after a seven-day free trial for Apple TV+ subscribers in the United States.

These initiatives are expected to have further strengthened user base for Apple Music, News and TV+ services in the to-be-reported quarter.

The Zacks Consensus Estimate for Services currently stands at $14.03 billion, indicating 12.1% growth from the year-ago quarter’s reported figure.

Will iPhone SE Sales Be Enough to Drive Y/Y Growth?

Apple’s fortunes are heavily reliant on iPhone, which is by far its biggest revenue contributor. The device accounted for 44.3% of net sales in the last-reported quarter wherein sales inched up 1.7% year over year to $26.42 billion.

Although Apple expects iPhone SE sales to be strong, we believe that it might not be enough to drive year-over-year growth. This is partly because of stiff competition in China, Apple’s largest international market, from the likes of Huawei.

Moreover, President Donald Trump’s threat to ban Tencent’s TCEHY WeChat is expected to have negatively impacted iPhone sales in the to-be-reported quarter.

Further, we believe consumers were likely to have postponed buying new iPhones as Apple was set to launch iPhone 12 with 5G support in October.

The Zacks Consensus Estimate for iPhone sales currently stands at $28.06 billion, indicating an 18.9% decline from the year-ago quarter’s reported figure.

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