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Apple (AAPL) Q2 2019 Earnings Preview: iPhone, China & Services

Benjamin Rains

Apple AAPL stock has climbed 30% in 2019 as part of the larger market comeback, driven by fellow FAANG stocks such as Facebook FB and Netflix NFLX. Now, as first-quarter earnings season heats up, it’s time to see what to expect from Apple’s fiscal Q2 2019 financial results that are due out on Tuesday, April 30.

Quick Overview

Apple might be set to start a new phase of its storied history as the company tries to steer Wall Street’s focus away from slowing iPhone sales and a Chinese downturn toward Services. The company’s Spotify SPOT competitor, Apple Music, is already a huge success. In fact, Apple’s streaming music service reportedly surpassed the Swedish streaming music power in terms of U.S. subscribers, according to a recent Wall Street Journal report.

More recently, Apple unveiled at a March 25 event some of its plans for a more robust Services future to further monetize its 1.4 billion active devices, which includes 900 million iPhones. Apple and CEO Tim Cook’s push includes its long-awaited streaming TV platform that the firm hopes can compete alongside Amazon AMZN Prime, Netflix, Hulu, and Disney DIS. The iPhone giant also showed off its $9.99 per month magazine-heavy news service, a new Apple credit card in partnership with Goldman Sachs GS, and a subscription-based gaming offering called Apple Arcade.

Some of this buzz has helped Apple stock climb 30% so far this year. But, much of AAPL’s 2019 resurgence can be attributed to its massive late-2018 selloff, coupled with broader market strength. Apple stock closed regular trading Thursday down 0.91% to $205.28 per share. This marked a roughly 12% downturn from its 52-week high, which could give the stock even more room to run heading into earnings—and after if Apple is able to please investors.

 

 

Q2 Outlook

Before we dive into what to expect from Apple’s fiscal second-quarter 2019 results, let’s quickly remember what happened last quarter to help put things into perspective. Last quarter, Apple’s revenue slipped 4.5%, due mostly to a 15% decline in iPhone sales and a 27% drop off in Greater China. The world’s second-largest economy, which includes Hong Kong and Taiwan, accounted for roughly 16% of quarterly sales, with iPhone sales responsible for 61% of Q1 revenue.

With this in mind, Apple’s Q2 revenue is projected to slip 5.9% from the year-ago period to hit $57.54 billion, based on our current Zacks Consensus Estimate. More specially, second-quarter iPhone revenue is projected to fall roughly 18% from $38.03 billion in the year-ago period to $31.22 billion, based on our current NFM estimates.

Meanwhile, sales in Greater China are expected to come in at $12.07 billion, which would mark a roughly 7.3% decline from Q2 2018. Luckily for Apple, its Services unit is projected to surge approximately 21% from $9.19 billion to hit $11.16 billion. This would come in above last quarter’s 19% expansion in the increasingly important growth division.

Earnings Trends

At the bottom end of the income statement, Apple’s adjusted quarterly earnings are projected to slip 13.2% from $2.73 per share in the prior-year quarter to $2.37 per share. This would come after Apple’s Q1 earnings popped over 7% despite the revenue decline.

On top of that, the company’s earnings estimate revision activity has trended in the wrong direction recently. But the company does have a strong history of quarterly earnings beats, including a 3.5% average surprise over the trailing four quarters.

 

 

Bottom Line

Apple is scheduled to release its Q1 fiscal 2019 financial results after the closing bell on Tuesday, April 30. And clearly the company is projected to post another quarter of disappointing overall sales results. Therefore, investors should pay close attention to any and all Services updates on the company’s earnings call as that unit could determine how AAPL stock trades in the near-term.

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