Apple (AAPL) Earnings Preview- Can AAPL break streak of four straight quarters of declining revenue
AInvestThursday, Feb 1, 2024 1:01 pm ET
3min read
AAPL --
AVGO --
QCOM --
QRVO --
SWKS --

In 2023, Apple (AAPL) stock gained an impressive 49%, outperforming the Nasdaq Composite's 44% return. However, in 2024, it has underperformed and lost its $3 trillion market cap, relinquishing the title of the world's most valuable company to Microsoft (MSFT). Apple currently has a valuation of $2.86 trillion and trades at 28 times FY24 earnings.

During fiscal year 2023, Apple reported negative revenue growth in all four quarters, marking the first time since 2001 that the company experienced a four-quarter decline in revenues. Apple's commentary on the revenue outlook for the December quarter also failed to instill confidence, as it forecasted revenues similar to the corresponding quarter last year.

AAPL is set to report its Q1 (Dec) earnings, and analysts have set high expectations. FactSet consensus calls for EPS of $2.10, compared to $1.88 last year, and revenue of $118.0 billion, a 1% year-over-year increase. The company expects Q1 revenue to be similar to last year.

For the first fiscal quarter, Wall Street consensus estimates call for revenue of $118.7 billion, up slightly from $117.2 billion a year ago. Earnings for Q1 are expected to reach $2.11 per share, up from $1.88 a year ago. Apple's focus will be on sales by product line, with iPhone sales estimated at $67.6 billion, a 2.8% increase year-over-year, and Mac sales at $7.9 billion, up 2.5%. Services are expected to grow 12.3% to $23.3 billion, approaching an annualized run-rate of $100 billion. However, iPad sales are estimated to decline by 21.4% to $7.4 billion, and the Wearables, Home and Accessories category is expected to decline 15.8% to $11.3 billion. Gross Margins are projected to land in the 45-46% range, 

There are concerns surrounding AAPL's future performance. Some analysts raise concerns of a significant decline of about 15% in iPhone shipments for 2024. This could negatively impact AAPL's overall revenue and earnings. Furthermore, the competition in the smartphone market in China, AAPL's biggest overseas market, poses a risk for the company. Domestic Chinese smartphone companies like Huawei and Xiaomi provide tough competition, especially considering Huawei's resurgence with competitively priced models following restrictions imposed by the U.S.

The guidance provided by AAPL will be crucial for investors. Since the start of the pandemic, Apple has shifted from providing exact guidance to more vague guidance on the conference call. Q2 (Mar) FactSet consensus calls for EPS of $1.58 and revenue of $95.6 billion. The market will be looking for signs of a turnaround after disappointing topline declines in the last fiscal year.

Apple's generative artificial intelligence strategy remains a topic of interest, but the company rarely provides meaningful updates on earnings calls. 

Some Wall Street analysts are cautious about AAPL stock ahead of the earnings report, with Barclays, Baird, and UBS expecting Apple to beat estimates for the December quarter but remaining cautious about the March quarter outlook. Morgan Stanley analyst Erik Woodring predicts that the December quarter will beat Street revenue and earnings estimates by 1% to 2%. However, he also suggests that March quarter guidance might be closer to his own forecast of $93.4 billion in revenue, indicating a year-over-year decline of about 2%. Additionally, he argues that consensus estimates for the September 2024 fiscal year are still too high for both revenue and profits. 

In the Chinese market, AAPL faces challenges due to the country's structural slowdown and fierce competition. Tim Cook's commentary on the Chinese market during the earnings call will be closely scrutinized. The performance of AAPL's sales in China will be crucial for mitigating investor worries and boosting the stock.

Any update on the launch of the Vision Pro headset will be noteworthy, as Mac Rumors reported that Apple sold 200K units. Investors are excited about initial orders for the recently launched Vision Pro mixed-reality headsets, although actual shipments begin after the reporting period. 

Despite the challenges, AAPL is expected to report stronger earnings than the same period last year, with a consensus estimate of $2.10 per share and projected revenue of $118 billion. The market will be closely watching these earnings to gauge AAPL's future potential and trajectory.

One advantage AAPL has going into this report is the low expectations. As we mentioned above, AAPL shares have underperformed peers and the broader market. The stock is approaching the earnings report in a downward trend which is very different from some of the overbought conditions its peers see. This could lead to a nice turnaround play if AAPL is able to regain its form and post a strong quarter. 

Overall, AAPL faces significant challenges, from declining iPhone shipments to increasing competition in the Chinese market. While the company's Q1 earnings are expected to show improvement, the upcoming guidance and commentary will play a crucial role in shaping investor sentiment and determining the stock's future performance. Investors and analysts will closely analyze AAPL's position and prospects in the evolving tech landscape.

Based on the weekly AAPL Weekly Feb02 $185.00 straddle, options market pricing suggests a move of approximately 4% in either direction by weekly expiration. 

Suppliers to monitor include SWKS, CRUS, AVGO, QRVO, TSM, and QCOM (for semiconductors), as well as SSNLF, LPL (for displays), and LITE, FNSR, and IIVI (for FaceID). 

$AAPL(AAPL)


Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.