Will Apple Miss on Earnings This Week?

Apple (NASDAQ:AAPL) is ready to report fiscal fourth-quarter earnings outcomes on Thursday, however buyers ought to mood their expectations. The corporate will face powerful comparisons in a number of classes, most notably within the core iPhone enterprise. The COVID-19 disaster impacted Apple’s provide chain earlier this yr and led to delays in closing testing, which subsequently pushed again the manufacturing schedule by a number of weeks.

The iPhone 12 and 12 Professional launched on Friday, barely later than normal, and after the fiscal fourth quarter had already closed on the finish of September. In distinction, final yr’s iPhone 11 lineup launched in late September.

Picture supply: Apple.

A “lack of recent merchandise”

Morgan Stanley analyst Katy Huberty launched a notice final week warning that analysts’ expectations for the iPhone stay too excessive. The consensus estimate at the moment requires 40.4 million iPhone models, which Huberty suggests is simply too optimistic. The analyst is modeling for iPhone unit volumes of simply 33 million and iPhone income of $22.9 billion, translating into a median promoting worth of roughly $694.

“Whereas outcomes forward of a product cycle do not are likely to affect investor sentiment, we see the potential for an expectations miss on the again of aggressive consensus iPhone expectations that do not totally account for the shortage of recent merchandise within the quarter,” Huberty wrote in a analysis notice to buyers. As an alternative of specializing in the iPhone, buyers ought to have a look at different components of the enterprise, in addition to steering for the vacation procuring season.

Whereas the Cupertino tech giant did have a digital product event in September to unveil the Apple Watch Sequence 6 and iPad Air 4, the latter system did not ship till October. The smartwatch did launch a couple of week earlier than the fiscal yr ended, so some Apple Watch gross sales might be included within the upcoming earnings report.

The excellent news is that Huberty believes that demand for the most recent iPhone is the strongest it has been in years, pointing to steer occasions and transport estimates. Individually, TF Worldwide Securities analyst Ming-Chi Kuo recently noted that pre-order volumes are up and that the product combine seems to be shifting towards higher-end Professional fashions, which bodes nicely for total profitability.

Huberty is modeling for companies income of $14.5 billion, which might symbolize each a brand new quarterly file and 10% sequential development. The analyst is assigning a a lot larger valuation a number of to the booming companies phase in comparison with {hardware} merchandise, as a result of extremely worthwhile and recurring nature of companies income. Apple is trying to hit 600 million paid subscriptions by year-end.

Whereas the timing of the iPhone 12 launch will have an effect on reported outcomes, the extra vital factor might be how the brand new flagship smartphone sells within the coming quarters. On that entrance, Huberty may be very bullish and tells buyers to purchase the inventory if it dips after earnings.