Apple Pre-earnings Analysis
Apple just tapped the $4 trillion market cap for the first time in history, making them the second largest company by market cap after Nvidia. That puts pressure on them to perform on earnings, otherwise they’re rising losing investor confidence from these highs and trigger profit taking.
The biggest focus on earnings will be iPhone sales. The new iPhone 17 was supposed to spark a big upgrade cycle, with most analysts expecting about a 10% revenue growth from phone sales alone. This is a key metric to watch because it will measure how this model is doing compared to the iPhone 16. Counterpoint Research shows that iPhone sales during the first 10 days after launch in U.S. and China were about 14% higher than the previous model. However, the first 10 days only tell us so much, investors want to know how device sales have performed fully since launch.
China is the biggest key for Apple as it is a market they’ve been trying to capture for years. Apple is up against competitors like Vivo, Xiaomi, Huawei, which currently dominate the market over Apple. Consumer shift towards domestic brands hasn’t helped, but investors are hoping the iPhone 17 stands out enough to encourage more buying. Apart from China, emerging markets like India and Southeast Asia may help offset any weakness in China. Any sign of traction there can underpin long term growth, potentially reaffirming to investors that Apple still has a lot of opportunities to unlock in international markets.
Other areas of focus:
Apple has crushed it when it comes to services in recent years. Analysts expect 13% year over year revenue growth here, which is important because Subscriptions, App Store, iCloud, AppleCare+ are all high margin businesses that feed into Apple’s overall profitability. With margin and cost pressures already a headwind, Apple could use all the help they can get to boost net income.
Artificial intelligence:
Investors have constantly questioned Apple over their efforts into expanding into artificial intelligence. The market will be looking for more clarity in this segment, potentially for new partnerships, R&D spend, partnerships, and a product roadmap. There’s a clear shift in the world towards artificial intelligence, Apple’s investors want to make sure that the company doesn’t fall behind, especially with names like OpenAI already signaling that they’re working on their own devices.
Most importantly:
Apple’s biggest quarter of the year is coming up, investors want strong projections. The holiday period is historically the strongest for the company’s device sales. Revenue is set to jump to $131.82 billion next quarter, Apple must maintain that outlook or increase it to reassure investors they’re on track to outdo last year’s performance of $124 billion.
Bonus note:
Although buybacks are usually welcome and Apple has historically bought hundreds of billions of shares back off the market to boost value for investors, this time may not be welcomed. Investors want to see Apple spending money on research and development, specifically for artificial intelligence. Sometimes, money spent on R&D will return more value in the long run than buybacks.