Apple (AAPL) reports third quarter earnings after the close on Tuesday (August 1st). After a pretty wobbly week or two for tech stocks all eyes are on whether the world’s largest company by market capitalisation can revive confidence in the FAANGs.

If you’re looking to trade Apple shares, here’s our guide to the most important things to watch in the Q3 earnings release.

EPS

 

Apple is expected to deliver $8.2 billion, or $1.57 a share, up from $1.42 a year before.  The company tends to exceed forecasts, with EPS beating analyst consensus in all but one quarter over the last four and a half years. Revenues are expected to rise 6% to $44.9bn, although Apple has a history of missing on revenue estimates.

iPhone sales

 

The third quarter is usually the weakest for Apple as it tends to launch new products in the autumn.  This may be particularly pronounced in this quarter as we look ahead to a potential sales ‘super-cycle’ driven by the latest iPhone upgrade later in the year. Nevertheless the market expects Apple to shift 40.7m iPhones over the period, slightly lower than the quarterly average. If customers are really waiting for the next refresh this might appear weaker than usual for Q3 but would need to be measured against sales guidance for the coming year.

Services revenues

 

Compared with some its peers, Apple trades at multiples that make it look relatively unloved. The reason is that Apple has always depended on hardware sales and that means always being able to deliver a refreshed iPhone with enough bells and whistles to get customers to upgrade. But a shift to more sustainable, recurring revenues from Services is changing the picture in terms of multiples. Services are important as they drive loyalty – people are more likely to upgrade and not move to a competitor phone. This is particularly important as the smartphone market reaches saturation point where organic growth is harder to come by.

So keep an eye on the Services revenues as this is key for Apple’s stock price. Alphabet (GOOGL) with its recurring ad revenues, trades at about 34x earnings, while Apple is on 17x. The more growth is Services driven the more Apple could narrow that gap. 

New iPhone

 

For the near-term, however, the iPhone remains the cash cow and so any update on the tenth anniversary refresh of the device will be crucial. Don’t expect much in the earnings release but investors will want Tim Cook to use the earnings call to talk about the product itself and, more importantly, what sales guidance Apple is offering. All eyes are very much on the next shiny new Apple.

Previous guidance

 

Apple provided the following guidance for its fiscal 2017 third quarter when it released Q2 numbers on May 2nd.

revenue between $43.5 billion and $45.5 billion

gross margin between 37.5 percent and 38.5 percent

operating expenses between $6.6 billion and $6.7 billion

other income/(expense) of $450 million

tax rate of 25.5 percent

AAPL share price chart

 

AAPL_310717_Daily_Chart



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