What to expect from Apple earnings❓

Apple (AAPL.US) is scheduled to report fiscal-Q1 2024 earnings report today after the close of the Wall Street session. Apple will be one of three US big tech companies reporting today, with Amazon and Meta Platforms being the other two. Earnings pack including Alphabet, AMD and Microsoft, released on Tuesday evening, failed to uphold upbeat sentiment towards tech sector, and tech investors hope today's releases will be a different story.

What are analysts' expectations?

• Total revenue: $117.97 billion (+0.7% YoY)
• Cost of revenue: $65.01 billion (-2.7% YoY)
• Products revenue: $95.14 billion (-1.3% YoY)
  • iPhone: $68.55 billion (+4.2% YoY)
  • Mac: $7.9 billion (+2.2% YoY)
  • iPad: $7.06 billion (-24.9% YoY)
  • Wearables, home and accessories: $12.02 billion (-10.9% YoY)
• Service revenue: $23.37 billion (+12.5% YoY)
• Gross margin: 45.5% vs 43% a year ago
• Total operating expense: $14.62 billion (+2.1% YoY)
• Operating income: $38.71 billion (+7.5% YoY)
• Operating margin: 32.9% vs 30.7% a year ago
• Net income: $32.32 billion (+7.7% YoY)
• EPS: $2.11 vs $1.88 a year ago
• Free cash flow: $32.6 billion (+7.9% YoY)
• Cash and cash equivalents: $38.8 billion (+89% YoY)

While Apple generates less revenue from Services than Products, Services sales are experiencing robust growth while Products sales were year-over-year lower in recent quarters. Source: Bloomberg Finance LP, XTB

What to focus on?

There are a number of factors to focus on in today's Apple release: 

• Firstly, demand for iPhones will be on watch as it remains the company's main source of revenue, accounting for over 50% of total sales. 
• Secondly, sales outlook for the Wearables unit will be on watch as the company's new product - Vision Pro headset - is set to go on sale on Friday. Any hints at demand for it will be watched closely. 
• Thirdly, the company has recently been facing a number of challenges, like for example new Chinese restrictions on foreign technology and increasing antitrust scrutiny in Europe. However, the company would likely be unable to provide a quantitative assessment of the impact the two may have on the business
• Last but not least, Artificial Intelligence (AI) will be on watch. AI is a new hype among tech companies. While Apple has been somewhat late to the party, compared to for example Microsoft or Alphabet, its vertical integration of software, hardware and services gives Apple a strong foundation to benefit from AI in the long-term

Apple's iPhone revenue has been barely growing in the first three quarters of calendar 2023. Wearables, company's second-largest source of product revenue, has also been struggling. Source: Bloomberg Finance LP, XTB 

Out of 55 analysts tracked by Bloomberg, who have recommendations on Apple shares, 34 recommend buying the stock, while only 6 recommend selling it. The remaining 15 have a 'hold' recommendation. An average 12-month price target for the stock is $200.12 per share, or around 8.5% above current market price. Options market pricing implies an almost 4% post-earnings share price move. This is slightly less than average absolute post-earnings price move of 4.2% for the past 40 quarters.

Apple (AAPL.US) shares have been underperforming during recent trading sessions, and the stock is looking towards a test of the support zone marked with 200-session moving average (purple line) and 23.6% retracement of the 2023 upward move. Source: xStation5