Apple Earnings Expected To Reflect Work-At-Home Trend

On Thursday (Oct. 29) Apple releases its Q4 earnings report — the last glimpse inside Apple the public will get this calendar year and the firm’s update on how it has managed its pandemic economics before the holiday shopping season spins fully into gear.

Apple has had an undeniably good year thus far in terms of earnings and revenue, and starting Friday it will begin shipping its first ever 5G phones — the iPhone 12 and 12 Pro. Suffice to say the experts are expecting big things from Apple when the earnings reports go out over the wires Thursday, despite the fact that unlike previous Q4 reports, Apple will not have the first few weeks of sales of its new flagship iPhone product to juice its revenue figures since pandemic related supply chain delays pushed the new iPhone release into Q1 2021.

Nonetheless Wall Street is looking for some fairly large numbers in its consensus estimates of $64.2 billion and EPS of 71 cents. That enthusiastic outlook is driven, according to Citigroup’s Jim Suva, by a developing belief that even without the iPhone figures, “work from home and stay at home trends continued to drive [an] uptick in consumer tech spending during the quarter.”

And Apple in particular, Cowen’s Krish Sankar noted, will likely see its revenue driven by strong demand for iPads and Macs. “Apple remains one of our top ideas in the hardware space,” he writes.

But analyst estimates, according to reports, are also driven this time around by high expectations for Apple’s non-hardware Services segment — home to Apple Pay, Apple Care, Siri, Maps, iCloud and Apple One. Morgan Stanley analyst Katy Huberty estimates EPS of 62 cents services revenues coming at  $14.5 billion when Apple announces later this week.

The predictions are now out, leaving only the question, how right did the analysts get it? Will Apple deliver, despite there being no new iPhone in the sales lineup during Q4?

Strong And Steady In 2020 

Apple, as most analysts putting together predictions, has weathered the COVID-19 storm better than most firms, as its Q2 and Q3 earnings results demonstrate fairly conclusively. Revenue from its services segment has been on a sharp rise all year, with Apple reporting an “all-time” record for the segment last quarter with a 16 percent year-on-year increase to $13.3 billion in revenue.

Despite Apple’s unwillingness to make formal official predictions for the following quarter or 2020 in general, CEO Tim Cook did note, given the circumstances on the ground and the demand the firm has seen globally since April, Apple is looking upon the end of the year with optimism.

“We’ve seen an uptick across, really, across the board,” Cook said on his last earnings call with analysts. “It’s not just related to a certain geo or a certain product. We think, by looking at it, a part of it is due to just our new products, a part of it is due to the stimulus programs taking effect in April, and then a part of it is probably the consumer behavior of knowing this is going to go on for a little while longer and getting some devices and so forth lined up to work at home … We believe that iPad and Mac are going to improve on a year-over-year basis during this quarter, and that’s customers that are either taking online education or working remotely.”

As for its 2020 strategy, Cook told investors it is the same strategy Apple has held for the last 40 or so years.

“We’ve always managed through difficult moments by doubling down and investing in the next generation of innovation,” he said. “And that’s our strategy today. And so, while we can’t say for sure how many chapters are in this book, we can have confidence that the ending will be a good one.”

The iPhone Factor 

While next-generation technology is a popular way of describing any and every consumer electronics release, in this case Apple is actually being quite literal. The iPhone 12 and 12 Pro are both 5G phones — making them actually “next generation technology.”

Will the end be as happy as the one Cook is forecasting? Certainly the buzz heading into the holiday shopping season is strong. According to reports, pre-orders for the iPhone 12 have been sizzling for the last two weeks in anticipation of Friday’s big release. According to CNBC, iPhone 12 pre-orders have already outstripped pre-orders for the iPhone 11 last year.

And analysts believe this 2020 strength combined with the push of 5G phones into the market will create an opportunity for Apple to consolidate its already considerable strength in the otherwise heavily fragmented smartphone market.

“We believe the results bode well for Apple’s newly released 5G enabled phones, which we expect will kick off a multi-year upgrade cycle,” RBC Capital’s Robert Muller wrote in a note. “iPhone users appear quite sticky with 90 percent  of iPhone customers either ‘definitely’ or ‘likely’ to remain in the ecosystem. This compares to just 71 percent of Android customers. Further, 24 percent of Android customers are considering an iPhone for this cycle, with 16 percent considering a switch to a 5G model. The Apple ecosystem remains strong with the average iPhone user owning 1.9 additional Apple products.”

Apple will likely come with its share of twists and turns to offer on earnings day, as it often comes prepared with a surprise piece of data. But as for what to watch in the expected announcement come Thursday, our best bet is the services segment information, to see if Apple managed another record better. Tablets and wearables — both of which have been for sale in new and improved versions for the last month — will likely also be an area of keen interest.

And as for the iPhone? It looks like we’ll have to wait for January to see if the iPhone 12 really lived up to the high expectations analysts are setting for it.