‘Off the charts’ – that’s how Apple has described pre-orders for its tenth anniversary phone the iPhone X. But will there be enough else in the Q4 earnings update to keep the share price at record highs?

Apple (AAPL) is due to report fiscal fourth quarter earnings after the close on Thursday.  Here’s our take on the key metrics to watch.

iPhone sales - The iPhone still accounts for the largest share of Apple earnings and so its fortunes are still inextricably linked to the device.

So far there seems to have been a fairly muted reaction to sales of the iPhone 8. US carriers have indicated lacklustre sales to date. AT&T reported 3.9% regular monthly customers upgraded in Q3, versus 5.1% when the iPhone 7 was launched last year. This meant 2 million fewer smartphones sold in the quarter by the carrier. Consumer Intelligence Research Partners have found that just 16% of US iPhone buyers opted for the 8 in the last quarter, compared with 43% who chose the 7 a year ago.

However the 8 and 8 Plus were only on sale for the final 9 days of the quarter so will have a limited effect on overall sales in Q4.

With the delayed launch of the X, there is of course no uplift for Q3. However this has been well flagged and of greater importance is the guidance for the following quarter. Apple ought to have a pretty good handle on where it thinks sales will be as a result of strong pre-order demand.

What investors will want to know is whether the weakness in the sales of the 8 is part of slowing demand or just a pause as consumers wait for the X to hit the shelves. All the signs point to the latter, but we note that the share price has already risen sharply following these early market indicators and so Apple has a relatively high bar to clear to beat expectations. While demand seems strong, supply is potentially a problem, albeit one that appears to be under control.

According to Zacks, consensus puts total iPhone unit sales at 46m (+2% yoy) and revenues at more than $29bn (+5.2% yoy).

China – Apple has suffered falling sales in Greater China but the X could be the answer. The high spec, high price iPhone 8 should offer Apple a stronger, more differentiated position in this particular market. The market accounts for about one fifth of Apple revenues but revenues fell 17% last year. A return to growth here is important and the new cycle offers a compelling argument for this to happen in FY2018.

Services - Investors will be looking for another rise in Services revenues, which have continued to grow at a considerable clip to become Apple’s second-largest source of incomes would make this division the size of a Fortune 100 company. Services revenues rose 22% year-on-year in Q3 to an all-time high of $7.3bn. Services delivered nearly half of all the $3bn year-on-year revenue growth for Apple in the last quarter. Consensus estimates put growth at 20% yoy in Q4.

Rising Services revenues, which are more sustainable and less dependent on delivering fresh device improvements, are seen as crucial to AAPL enjoying higher multiples than present. Another jump in Services revenues would be as important as strong iPhone sales for the stock.

Currently AAPL is trading more like a technology hardware company, with a price to earnings ratio in the region of c19x (ttm). That compares with FAANG peers Alphabet (c35x), Netflix (c200x), Facebook (39x) and Amazon (280x).

Higher earnings from Services ought to change this as they are more sustainable and unlike iPhone sales, are neither dependent on delivering the next big product upgrade nor seasonal. Services growth will also help support iPhone sales as they build loyalty in the Apple ecosystem. This is particularly important in the Greater China market, where it is struggling relative to every other region. It also boosts sales of other products as consumers stick to all things Apple, eg Macbook, Apple Watch.

EPS - For Q3 the company posted quarterly revenue of $45.4bn and EPS of $1.67, up from $1.42 in the year-ago quarter. For Q4, EPS is expected to rise to around $1.87.

Revenues - Apple guided revenues in a range of $49bn-$52bn, which at the mid-point of the range is a 7.7% increase from the year-ago period. Q3 was up 7%.

Margins - We’ll also be looking at gross profit margin guidance as sign of how Apple thinks the X will boost profitability. Q1 of fiscal 2017 was 38.5%. The high price for the X should support further margin accretion and allows Apple to offset slower volume growth.

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