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Apple (NASDAQ: AAPL) is expected to release its third quarter 2021 results on July 27 after market close. Over the past year, shares of the world’s largest tech giant by revenue have jumped 58% and are currently trading above $ 146. A strong impression could push stocks higher, so let’s take a closer look at what street analysts are waiting for.
Income overview
Apple is expected to post EPS of $ 1.01 on revenue of $ 72.93 billion. Meanwhile, the Whisper earnings figure, or Street’s unofficial take on earnings, stands at $ 1.17 per share.
Results for the previous period
In the previous quarter, the company reported earnings of $ 1.40 per share, which more than doubled from the previous year’s quarter and topped the consensus estimate of $ 0.98. In addition, revenue rose 54% to $ 89.6 billion and exceeded analysts’ expectations of $ 77.01 billion. (See Apple stock charts on TipRanks)
Factors to watch out for
Through its five software platforms, iOS, iPadOS, macOS, watchOS, and tvOS, Apple delivers unparalleled experiences across all of its devices and provides users with advanced services, including the App Store, Apple Music, Apple Pay, and iCloud.
Apple’s products and services revenue outperformed in the end of March quarter and contributed to overall profit growth. The same trend is expected to continue in the third fiscal quarter due to booming iPhone demand, continued momentum in Apple services, and strong growth in wearable devices.
Notably, sales of iPhones, Macs and iPads, as well as portable devices, home and accessories (mainly Airpods, Apple TV, Apple Watch), are nearing record highs. Additionally, net sales of services from advertising, AppleCare, and digital content including Maps, Siri, free iCloud storage, and Apple TV + services are booming.
Apple’s iPhone is the company’s premium product, contributing over 50% of total revenue. Notably, device sales grew 66% year-over-year to $ 47.9 billion in the last quarter. Therefore, the revenue growth in the third quarter is likely due to strong demand for 5G compatible iPhones, despite growing competition in the smartphone arena.
The widespread acceptance of the Apple Watch has made Apple the dominant player in the wearable market, highlighting the recent popularity of the Fitness + subscription service. Notably, Apple launched watchOS 8 in the reportable quarter, which offers better access with Wallet, new updates with the Home app, new workout types, and an updated Breathe app.
In services, the tech giant posted record revenue of $ 16.9 billion last quarter, driven by the App Store, cloud services, music, video, advertising and services of payment. As a result, the reportable quarter is likely to have seen continued momentum in new service offerings including Apple TV +, Apple Arcade, Apple News Fitness +, and the Apple One plan.
The acceleration in the growth of the installed base, the increase in accounts on digital content stores and the increase in paid subscriptions are among the main drivers of growth. Notably, the company’s paid subscriptions on its service platform crossed 660 million in the March quarter.
Adding new services and improving service offerings attract a large customer base and act as catalysts for profit growth.
In the June quarter, Apple launched Apple Podcast Subscriptions, a service that offers subscriptions to essential independent voice shows like “Birthful” with Adriana Lozada and “Pantsuit Politics” with Beth Silvers and Sarah Stewart Holland, as well as leading studios, such as Lemonada Media, Luminary, Realm, and Wondery. In addition, subscriptions to major media and entertainment brands including CNN, NPR, The Washington Post, and Sony Music Entertainment are also available.
Along with high-end products acting as catalysts, Apple’s partnerships with Amazon (AMZN) and Google (GOOGL) instill optimism in the service segment.
On the cost front, expenses are increasing due to increased investment in R&D for new and updated products and services, which could have a negative effect on the bottom line to some extent.
Management expectations
Management commented, “We are innovating and investing at an unprecedented rate, including accelerating our investment in the United States with our new commitment to contribute more than $ 430 billion and 20,000 jobs to the country over the next five years. “
In the fiscal second quarter earnings call, Apple CFO Luca Maestri said: “We expect our June quarter revenue to experience strong double-digit year-over-year growth. . However, we believe that the sequential drop in revenue from the March quarter to the June quarter will be larger than in previous years for two reasons. First of all, keep in mind that due to the later launch schedule and high demand, the iPhone only hit the supply-demand balance in the March quarter. This will cause a more pronounced sequential decline than usual. Second, we believe supply constraints will impact revenues by $ 3-4 billion in the June quarter. “
He also expects the gross margin to be between 41.5% and 42.5%. In addition, operating expenses were forecast in the range of $ 11.1 to $ 11.3 billion.
Analyst recommendations
On July 20, Monness analyst Brian White maintained a buy rating and price target of $ 180 (upside potential 22.6%).
White commented: “During this crisis, we believe that Apple has improved its value proposition in the eyes of the world by introducing new innovations, supporting a more digital lifestyle and attracting new consumers to the Apple planet; However, a changing political landscape and growing suspicion of Big Tech puts Apple in a more vulnerable position than in previous years.
Further, the analyst added, “We believe Apple will approach our 3Q: FY21 revenue estimate of $ 80.33 billion (up 35% year-on-year; Street at $ 72.94 billion). dollars) and hit at least our EPS projection of $ 1.16 (Street at $ 1.00). “
Recently, Canaccord Genuity analyst Michael Walkley reiterated a buy rating on the stock and raised the price target to $ 175 (19.2% upside potential) from $ 165.
Walkley raised its estimates ahead of the release of results next week, “based on strong demand for the company’s products.” He said: “Apple continues to demonstrate the strength of its product ecosystem, and we believe the consensus estimates will prove conservative for the third quarter results and the fourth quarter forecast if Apple returns to providing advice.”
Further, the analyst commented, “Apple is well positioned to continue to benefit from the 5G upgrade cycle, and we anticipate strong overall growth trends as 5G smartphones increase and its installed base expands. with higher margin service revenues.
Overall, the stock has a moderate buy consensus rating based on 19 buys, 5 takes and 2 sells. Apple’s average price target of $ 159.42 implies upside potential of 8.6% from current levels.
According to TipRanks’ new risk factor tool, Apple is primarily exposed to two factors: production and macroeconomic and political factors, which contribute 26% and 19% of the stock’s total risk, respectively. In the production risk category, AAPL has listed 7 risks, details of which can be found on the TipRanks website.
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