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Apple (AAPL) to Report Q2 Earnings: What's in the Offing?

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Zacks Equity Research
·5 min read
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Apple AAPL is set to report second-quarter fiscal 2020 results on Apr 30.

Markedly, on Feb 17, Apple announced that it anticipates missing the revenue guidance for the fiscal second quarter due to iPhone supply constraints and lower demand in China, both on account of the coronavirus (COVID-19) outbreak in the country. For the quarter to be reported, the company had expected revenues between $63 billion and $67 billion.

The Zacks Consensus Estimate for revenues is currently pegged at $53.44 billion, indicating a decline of 7.9% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for earnings is currently pegged at $2.10 per share, having declined 7.9% over the past 30 days. The figure indicates a 14.6% decline from the figure reported in the year-ago quarter.

Notably, the company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 6.1%.
 

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise
Apple Inc. Price and EPS Surprise

Apple Inc. price-eps-surprise | Apple Inc. Quote

 

iPhone Sales Likely to Decline

Apple’s fortunes are heavily reliant on iPhone, which is by far, its biggest revenue contributor. The device accounted for 60.9% of net sales in the last reported quarter wherein sales grew 7.6% year over year to $55.96 billion.

However, Apple’s second-quarter iPhone unit sales are expected to have been muted due to the coronavirus outbreak in China that significantly disrupted the supply chain. Moreover, while factories in China resumed operations, Apple has been facing a bleak demand scenario as the nations around the world enforce social-distancing measures.

China is the only major market where Apple’s stores reopened. The company operates approximately 500 stores worldwide, of which 270 are located in the United States. It shuttered 458 stores outside Greater China on Mar 13 to decelerate the spread of the coronavirus.

Notably, in January, iPhone sales in China dropped 28% month over month. Further, 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, sales jumped sharply in March with Apple selling 2.5 million iPhones.

Nevertheless, Apple’s market share in China, marking its third largest market with roughly 15% contribution to its sales, shrank over the past several years as local Android brands steadily launched higher-end phones.

The iPhone-maker endures intensified competition from rivals presently releasing 5G devices compatible with China’s enhanced telecommunications networks while Apple is yet to launch an iPhone with 5G capability.

The Zacks Consensus Estimate for iPhone sales currently stands at $25.95 billion, indicating a 16.4% decline from the year-ago quarter’s reported figure.

Apple Music & App Store to Aid Services

The Services segment became the new cash cow for Apple, which currently has a Zacks Rank #3 (Hold). The increasing popularity of the App Store and an expanding subscriber base of Apple Music, Apple Podcasts and Arcade gaming are likely to have benefited the top line in second-quarter fiscal 2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apple currently has more than 480 million paid subscribers across its Services portfolio. App Store continues to grab attention of prominent developers from around the world, helping the company offer exciting new apps that drive traffic.

Additionally, Apple’s endeavor to broaden its ecosystem through partnerships with Amazon AMZN is a positive for the Services segment. Further, Apple Music’s availability on Amazon Echo devices and Fire TV is helping it expand its footprint and compete better with Spotify SPOT and Alphabet’s GOOGL YouTube Music.

Although Sweden-based Spotify is leading the space at the moment, Apple Music is catching up fast. The service now caters to more than 60 million subscribers, trailing Spotify’s 124-million premium subscriber count.

Moreover, Apple Podcasts beams more than one million shows in above 100 languages. The iCloud service is free but allows users to upgrade for extra storage. Additionally, the Arcade gaming service includes ad-free original titles designed for Apple devices and it offers unlimited access to the entire catalogue of more than 100 exclusive games, all playable across iPhone, iPad, iPod touch, Mac and Apple TV.

Although supply-chain disruption due to the coronavirus outbreak is expected to dash iPhone’s hopes for decent quarterly results, strong Services business bodes well for Apple’s prospects.

The consensus mark for Services currently stands at $12.90 billion, indicating 12.6% growth from the year-ago quarter’s reported figure.

More Stock News: This Is Bigger than the iPhone!

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