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Earnings Preview: Can Apple, Inc. Return to Growth?

Scheduled to report results for its first fiscal quarter of 2017 on Tuesday, Jan. 31, Apple (NASDAQ: AAPL) will show whether it has returned to revenue growth. With trailing-12-month revenue down 8%, even a small year-over-year increase in Apple's first-quarter revenue would be a nice change.

Here's a preview of the earnings report as well as some background on a few key areas worth checking in on when the tech giant reports results.

Image source: Apple.

The numbers

Metric Q1 2017 Guidance* Q1 2016 Year-Over-Year Change
Revenue $77 billion $75.9 million 1.4%
Earnings per share $3.17 $3.28 (3.4%)
Gross profit margin 38.25% 40.1% (185 basis points)

Fiscal quarters shown. Asterisk indicates figures are based on midpoint of guidance ranges provided for management. Data for chart retrieved from Apple's quarterly earnings releases. Table by author.

After reporting three quarters straight of year-over-year declines in revenue, Apple expects about a 1.4% year-over-year increase in revenue in its first quarter. But despite expectations for higher revenue, management anticipates a 3.4% earnings decline as its profit margin is negatively impacted by currency headwinds, higher cost structures for new products, and an unfavorable comparison due to a $548 million award from a patent infringement in the year-ago quarter.

3 key areas to watch

Beyond Apple's first-quarter revenue, EPS, and gross profit margin, investors should look at iPhone sales, guidance for Apple's second quarter, and services revenue growth.

1. iPhone sales: Accounting for 63% of Apple's trailing-12-month revenue, the iPhone segment is undoubtedly the company's most important business. The segment dwarfs its other segments, which represent 11% or less of trailing-12-month sales.

iPhone 7. Image source: Apple.

So, what can investors expect from iPhone sales? Given Apple's guidance for its overall results and the influence of the iPhone segment on total results, investors should expect similar iPhone revenue and unit sales this year since Apple is only guiding for a 1.4% increase in total revenue. In the year-ago quarter, iPhone revenue was $51.6 billion and iPhone unit sales were 74.8 million.

2. Guidance: One of the quarter's most insightful metrics will be the guidance Apple provides for its second quarter. With this figure, investors will get to see whether management expects more revenue growth.

Given that the iPhone 7 didn't stick to Apple's usual biannual schedule for form factor overhauls, it's possible the company could return to year-over-year declines in the second quarter. But until it provides guidance, there isn't any clear indication of what investors should expect for the trajectory of revenue beyond its first quarter.

3. Services revenue growth: One segment that could help drive surprising growth is the services segment, which includes sales from the App Store, iTunes, Apple Music, iCloud, Apple Pay, licensing, and other services. In the most recent quarter, services revenue was up an impressive 24%, hitting a record $6.3 billion. Growing to 13% of Apple's revenue in the quarter, services is now its second-largest segment. If the segment benefited from a significant holiday boost in the first quarter, the growing segment may play a key role in helping Apple's overall revenue this year -- possibly even serving as the key factor for preventing further declines in total revenue.

In its most recent quarter, year-over-year services revenue growth accelerated from 19% in the third quarter of fiscal 2016 to 24% in its fourth quarter. Look to see if Apple can maintain this higher growth rate achieved in its fourth quarter.

In addition to the first-quarter report after market close on Jan. 31, management will host a live conference call to discuss results at 2:00 p.m. PST.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy .

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

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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