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Can Continued Services Momentum Aid Apple's (AAPL) Q4 Earnings?

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Apple’s AAPL fourth-quarter fiscal 2021 results, to be reported on Oct 28, are expected to have benefited from continued momentum in the Services business.

The segment, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, accounted for 21.5% of sales in third-quarter fiscal 2021.

Apple currently has more than 700 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic, thereby expanding subscriber base.

Markedly, the number of small developers has grown by 40% since 2015, and they account for 90% of App Store developers currently.

Apple Inc. Revenue (Quarterly YoY Growth)

Apple Inc. Revenue (Quarterly YoY Growth)
Apple Inc. Revenue (Quarterly YoY Growth)

Apple Inc. revenue-quarterly-yoy-growth | Apple Inc. Quote

Apple charges a commission of up to 30% on any in-app purchase made by users through its payment system. However, the high App Store fees and Apple’s market dominance have attracted attention from regulators and lawmakers globally.

Apple received an adverse ruling in the lawsuit against Fortnite developer Epic Games after U.S. federal Judge Yvonne Gonzalez Rogers ruled that the iPhone-maker has to allow third-party payment options offered by developers in their mobile applications.

Judge Rogers’ permanent injunction is now expected to hurt App Store’s top and bottom lines as users will not only have more payment options, but can also leave Apple’s ecosystem to buy digital goods directly from developers.

In the to-be-reported quarter, Apple allowed some concessions to developers to ease some pressure off the latter regarding its App Store practices. As part of the App Store Small Business Program, businesses earning less than $1 million annually will continue to benefit from the reduced commission for at least the next three years.

The Zacks Consensus Estimate for Services revenues currently stands at $17.43 billion, indicating 19.8% growth from the year-ago quarter’s reported figure.

Click here to know how Apple’s overall fourth-quarter results are likely to be.

Apple’s Non-iPhone Portfolio to Boost Revenues

Apple’s non-iPhone portfolio, which comprises Mac, iPad and Wearables, is expected to have aided its top-line growth in the fiscal fourth quarter.

This Zacks Rank #2 (Buy) company’s Mac sales are expected to have been driven by the ongoing work-from-home and online-learning waves. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, PC sales were up 3.9% year over year to 86.7 million units during the September-end quarter, per IDC’s estimates. IDC placed Apple in the fourth position with respect to PC sales, while Lenovo ranked #1, followed by HP HPQ and Dell Technologies DELL at #2 and #3 spots, respectively. Per IDC, Apple’s Mac shipment grew 9.9% year over year.

The Zacks Consensus Estimate for Mac revenues stands at $9.08 billion, implying 0.6% growth from the figure reported in the year-ago quarter.

Moreover, iPad sales are expected to have benefited from the launch of the new iPad Pro lineup in third-quarter 2021. The consensus mark for iPad revenues is pegged at $7.13 billion, suggesting 5% growth from the figure reported in the year-ago quarter. iPad demand is also expected to have remained high due to online learning and increased adoption among enterprises.

Apple launched iPadOS 15 on Sep 20 and its ninth-generation iPad on Sep 24.

Apple is also riding on its strong market share in the wearables space. The company’s endeavor to add healthcare features to its smartwatch has been a game changer for the device that faces significant competition from the likes of Garmin, Alphabet GOOGL, Xiaomi, Samsung Electronics and Huawei Technologies.

During the to-be-reported quarter, Apple launched watchOS 8, which offers new workout types, updates to cycling, and the new Mindfulness app.

The consensus mark for wearables revenues is currently pegged at $9.36 billion, indicating growth of 19% from the figure reported in the year-ago quarter.

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