Apple is ready to unveil its last earnings report of 2019 this week, and investors are anxiously waiting to hear some good news on iPhone sales.
All early indications point to sales of the iPhone 11 and iPhone 11 Pro performing even better than expected. But because the new devices were only on sale for the very tail end of the quarter, they might not have given Apple the growth Wall Street is desperate to see.
Apple CEO Tim Cook and CFO Luca Maestri are set to divulge all the details for Apple’s fiscal Q4 2019 earnings on Wednesday, October 30, at 2 p.m. PDT. Per usual, Cult of Mac will be analyzing all the data right when it drops and there are a couple of areas and metrics that are key to keeping Apple’s stock price soaring.
The numbers Wall Street wants
AAPL shares hit a new high of 249.75 this week. And if revenues for Q4 come in above expectations, it will likely give the stock another big bump. Some of the top investment firms recently raised their target price for Apple’s stock price as high as $275 and $285 per share. Other companies, like Apple Card partner Goldman Sachs, have actually lowered their AAPL stock price expectations.
During its last earnings report, Apple told investors it expects to bring in revenues between $61 billion and $64 billion with a gross margin 37.5% and 38.5%. Based on Thomson Reuters’ poll of analysts, Wall Street expects Apple to hit its guidance with somewhere around $62.9 billion in revenue. Neil Cybart, one of the more optimistic Apple analysts, thinks Apple might top its guidance with $64.4 billion in revenue.
Heading into the 2019 holiday quarter
The Christmas shopping season is always Apple’s most profitable period. Fueled by three new iPhones and AirPods Pro, this next earnings period could shatter all of Apple’s previous records. The iPhone 11 was only on sale for 10 days during Q4 2019, so it might not have had a big effect on the numbers. However, Apple’s predictions for next quarter will be a sign of how well it’s doing.
Apple’s guidance for Q1 2020 is the figure many analysts will be most interested in seeing. Last year, Apple brought in $84.31 billion during Q1. Most analysts expect Apple to shatter that record. Ped30‘s compilation of polls shows analysts estimate that Apple’s guidance will come in around $86.5 billion for Q1 2020.
Growth in Q1 2020 will depend on the new iPhones selling well. Cook already crowed that demand for the new iPhones is very strong. Investors are worried that the average selling price (ASP) for iPhones could drop if customers go for the iPhone 11 instead of the iPhone 11 Pro Max. That would mean even though sales go up, revenues might not reach as high as last year. Analyst Ming-Chi Kuo’s sources indicated that the iPhone 11 Pro Max outsold the iPhone 11 during the preorder period but that trend might change later this year.
Apple services on the rise
With the Apple TV+ launch on November 1, Apple will have its full lineup of new services ready to rake in as much cash as possible next quarter. Apple always opens up its earnings call to questions. Today, investors probably will pester Cook and Maestri for more info on what to expect from Apple TV+, Apple Arcade, Apple Card, Apple Music and Apple News+.
Because the ASP on iPhones is likely declining, Apple will be more dependent on services to grow revenues. Apple TV+ probably won’t bring in much money right off the bat because Apple is giving away one-year subscriptions to anyone that buys an iPhone, iPad or Mac. The cost to make Apple TV+ could possibly hurt Apple’s stock in the near term.
Plus, Goldman Sachs analyst Rod Hall went out on a limb and suggested Apple will account for its Apple TV+ freebie as a $60 discount on its hardware. That means slimmer margins. We think Cook and Maestri will probably tackle this question head-on to give investors more confidence in Apple’s big services play.
The U.S. trade war with China will also be on the minds of most investors. The iPhone avoided being hit by tariffs so far, but that could change in December. Apple is also supposed to launch the Mac Pro by the end of 2019, and some of the high-end computer’s components were hit with tariffs. Cook used previous earnings calls to comment on President Donald Trump’s tariffs and how U.S. policies might impact the company. He’ll probably do the same on this call.
Sales in China are another key area of interest. Early reports claimed reactions to the iPhone 11 in China were pretty muted. iPhone sales started to show signs of growth again earlier this year, though, so we’ll find out the real story Wednesday as Apple dishes out some of its numbers on sales growth by region.
Wearables could provide a bit of boost for revenues, too. The Apple Watch Series 5 went on sale just over a week before Q4 2019 ended. Price cuts on older models could have increased revenues, helping push Apple’s wearables business into an impressive moneymaker.