After three quarters in a row of year-over-year revenue declines, Apple (NASDAQ: AAPL) returned to growth in its most recently reported quarter. First-quarter revenue and EPS increased 3% and 2%, respectively, compared to the year-ago period. With the tech giant returning to growth, shares have soared about 20% in the past three months.
Now, with Apple's second-quarter earnings report coming up next week, investors will look to see if Apple can sustain its upward growth trajectory. Ahead of Apple's earnings, here are three metrics for investors to watch.
As usual, Apple's iPhone sales for the quarter will be key. As the iPhone accounts for 64% of Apple's trailing-12-month revenue, it's no wonder analysts watch the figure closely.
What should investors expect from second-quarter iPhone sales? Considering that Apple guided for second-quarter revenue to rise between 1.8% and 5.7%, year over year, it's likely that management expects a similar trajectory for iPhone sales, since the massive segment usually determines the general direction of Apple's overall revenue. In Apple's second quarter of 2016, the company sold 51.2 million iPhones, generating $32.9 billion in revenue. Therefore, Apple will need to beat these figures for the company to continue growing the important segment on a year-over-year basis.
Another area for investors to check on will be Apple's gross profit margin. Consistently reporting gross profit margin well over 35% for years, the company's lucrative margin is telling evidence of Apple's pricing power and its economies of scale. For Apple stock to continue performing well over the long haul, investors should ensure that the company can continue to maintain its heady gross profit margin.
For Apple's second quarter, management said it expected Apple to have a gross profit margin between 38% and 39%. While this range is notably below Apple's gross profit margin of 39.4% in the year-ago quarter, it's still robust enough to suggest Apple's operational prowess and its clout with customers remain intact.
Data source: Apple quarterly SEC filings. Asterisk indicates a figure based on the midpoint of management guidance. Chart by author.
Investors should look for Apple to report a gross profit margin within its guidance range.
While Apple's reported iPhone sales and gross margin for its second quarter are important, the one figure that may be scrutinized the most could be Apple's revenue guidance for its third quarter. Since Apple has only recently returned to revenue growth, investors will look not only for growth in the current quarter but also for expected growth in Apple's third quarter.
Ahead of an expected major overhaul to the iPhone this fall, it's possible that an unusually high number of customers are holding off on iPhone purchases until Apple reveals its 2017 iPhone models. Investors will get an idea of what to expect from iPhone sales ahead of the company's annual iPhone launch when Apple shares its revenue guidance for its third quarter. For Apple to continue growing its top line on a year-over-year basis, management's revenue guidance for its third quarter will need to exceed the $42.4 billion in revenue Apple reported in the third quarter of 2016.
Apple is scheduled to report its second-quarter results after market close on May 2. The company will host a live conference call to discuss the quarter's performance at 2:00 p.m. PDT on the same day.
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