Apple earnings on Thursday: Here’s what to watch for

Apple will want to quickly forget about its fiscal second quarter earnings results and move on.
Photo: Josh Davidson/Cult of Mac

Apple reports its fiscal second-quarter earnings results Thursday afternoon, and chances are good that Cupertino will be glad to see the first three months of 2020 fade into history.

Having said that, things might not be as bad as many expect due to the ongoing COVID-19 pandemic. Oh, there won’t be any record-breaking figures, but there are some pretty good indicators that the news won’t be all doom and gloom.

As is always the case, though, the devil will be in the details. Apple’s conference call after issuing its Q2 2020 earnings report will be even more interesting than the numbers themselves.

More than two months ago, Apple warned that the coronavirus would seriously impact supply and demand for its products — especially the iPhone. The global economic devastation wreaked by the virus would prevent Apple from hitting its original revenue guidance for the quarter, the company said.

During its January earnings call, Apple projected March quarter revenues of $63 billion to $67 billion. The range reflected some uncertainty about the potential impact of the coronavirus, which was in the beginning stages of becoming an international health crisis. How long ago that now seems.

When Apple warned in February that it would miss its revenue target, execs wouldn’t even take a guess about how bad things would end up. Apple will tell the world Thursday just how bad it all turned out. And it’s possible the glass might be half-full.

Apple Q2 2020 earnings expectations

The Zacks Consensus Estimate for Apple Q2 2020 revenues currently sits at $53.44 billion, indicating a decline of 7.9% from the year-ago quarter’s reported figure. Having said that, it might be totally unfair to compare Apple’s Q2 2019 earnings of $58 billion to 2020.

The current Wall Street analyst consensus revenue forecast is $54.6 billion, but guesstimates are all over the road, ranging from $45.6 billion to $58 billion. That in itself is a true sign of just how unsure analysts and economists are about how harshly the first three months of the pandemic affected the U.S. economy.

The consensus Apple earnings forecast is set at $2.10 a share. But again, the range is wide, with estimates running from $1.73 to $2.73 a share. The figure indicates a 14.6% decline from the figure reported in the year-ago quarter.

The question among most analysts is not how well Apple did in the quarter, but how well did the company hold up under extreme pandemic pressure. Wall Street also will be keen to learn what expectations Tim Cook & Co. have for the new quarter and on to the end of 2020.

What to look for during Apple earnings call

Here are some of the things analysts say they’ll be looking for in Thursday’s Apple earnings call.

  • Just how bad were iPhone sales? With so much of Apple’s sales tied to the popular mobile device, iPhone sales remain the single biggest factor in the company’s quarterly revenue story. Despite recent gains in areas like services and wearables, the iPhone still typically represents 61% of the company’s net sales. Analysts expect iPhone unit sales for the period fell due to the coronavirus outbreak that significantly disrupted the supply chain. Apple shuttered 458 stores outside China on March 13. That had to have had a profound impact on iPhone sales. In China, iPhone sales dropped 28% month over month, according to independent research. The company sold only 494,000 iPhones in the region during February, reflecting a 61% drop from 1.3 million in the year-ago period. However, as things slowly began to return to normal in China around March 1, sales reportedly roared back to life, with Apple selling 2.5 million iPhones last month. The Zacks Consensus Estimate for iPhone sales currently stands at $25.95 billion, indicating a 16.4% decline from the year-ago quarter. With Apple now refusing to release specific sales figures on its products, we’ll never know exactly how many iPhones were sold, but revenue numbers will tell us a lot.
  • How did services fare during lockdown? With millions of people hunkered down during the three-month period, it will be interesting to see how well Apple’s growing services sector did during the quarter. Investors will be looking for any detail on offerings like Apple Arcade, Apple TV+, Apple Card and Apple Music. With more than 480 million paid subscribers across its portfolio, the consensus estimate is that services generated around $12.9 billion in the period, a 12.6% growth from the year-ago quarter’s reported figure.
  • How well did MacBooks and iPads do? There have been widespread reports of strong demand for laptops and other tech products due to people working at home during the pandemic. Sales of these products were already doing well in the fiscal first quarter. Investors will want to know how well these product lines did in the downturn.
  • What about Apple stock buybacks? The company is widely expected to announce a new stock-repurchasing plan. Apple previously promised to eventually reach a zero net cash position after holding about $100 billion at the end of the December quarter. Analysts expect an Apple stock buyback in the $50 billion to $100 billion range, and potentially a dividend hike. If it happens, it will give investors confidence that Apple has the cash to weather the pandemic with few problems.
  • Will Apple provide Q3 2020 guidance? With expectations for the new quarter already low, investors can’t be shocked much more than they are now. Nonetheless, if Apple issues no guidance for April to May, it will prove surprising if not disappointing. For the June quarter, the current consensus stands at $51.78 billion in revenue, with profits of $2.10 a share. However, those numbers are very much guesstimates under the current circumstances.
  • How is demand for Apple products holding up? Investors will be looking for specifics on product demand in any guidance Apple issues for the new quarter. They will key in on things like how well the second-generation iPhone SE, the recently released iPad Pro and Magic Keyboard, and the refreshed MacBook Air are selling. They also will want to know how any continued supply chain problems might affect Apple’s manufacturing.

Thoughts for June and beyond

June quarter guidance or not, analysts already appear to be looking past the current troubles and past Q3.

Deutsche Bank’s Jeriel Ong wrote in a recent research note that investors appear focused on the future. “Apple’s stock has been resilient, almost too resilient in light of the broader macro deterioration, and we expect near-term fundamental downside,” Ong wrote. “Long-term, we continue to believe that Apple is the best name to own in the IT Hardware landscape.” He maintains a buy rating and a $285 price target on Apple shares.

CFRA analyst Angelo Zino asserted in a recent research note that investors should look past June for a strong launch of 5G iPhones later this year. Zino recommends buying Apple stock on the wings of a “flight to quality.”

Global Markets Playbook analyst Kevin George put the situation in the simplest of terms. “Any pessimism in the [revenue] report should be a transitory issue for 1 or 2 quarters at most and investors should look to take advantage of negativity in the stock price,” he said.


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