Being the world’s biggest company, as well as the maker of the world’s most popular smartphone, even Apple Inc. (AAPL) earnings reports are well-watched events. Tuesday’s post-close news from Apple regarding its second fiscal quarter will be no different.
This upcoming quarterly report — concerning iPhone demand, slowing smartwatch sales and an uncertain future for the iPad — could be a make-or-break moment for Apple stock. It may well force traders to decide if Apple is still a consumer technology champion or just another tech company.
With that as the backdrop, here’s a closer look at what to expect on Tuesday, how those numbers fit into the bigger picture and what’s most apt to push AAPL around before, during and after the earnings call.
Apple Earnings Preview
As of the latest look, analysts collectively expect Apple to report earnings of $2 per share on $51.97 billion worth of revenue for its second quarter. Neither compares favorably to year-ago numbers, when the company posted a per-share profit of $2.33 on $58.01 billion in sales. If sales do indeed drop on a year-over-year basis, it will be the .
The culprit, of course, is the iPhone. Apple sold 61 million iPhones in the second fiscal quarter of last year, but only expects .
And that lull could get worse before it gets better. Maybank analyst Warren Lau believes that for the quarter ending in June, . Apple’s earnings report and conference call will offer some more color on that possibility.
3 Things to Think 91¶¶Òõ
While the numbers ultimately tell the tale, driving the numbers are a variety of subjective forces — some for the better, some for the worst. Three of those themes could make a bigger impact on Apple’s stock value than the rest for the foreseeable future.
Is the Market Saturated?: Apple enthusiasts and stock owners alike are quick to point out that while there are more than , the global population now exceeds 7 billion. That leaves 6 billion, give or take, potential customers who could still buy an Apple device. The reality is, however, most of the remaining 6 billion probably aren’t going to buy an iPhone, and iPad or a Mac at any point in the near future. Indeed, sales of the all-important iPhone may be close to topping out. Some will suggest the new , and they’re (more or less) right. It’s the first time Apple has seen fit to target the value-oriented arena — where competition is fierce — perhaps indicating it’s run out of premium-prime-paying customers. Indeed, the previous quarter’s iPhone sales outlook says we’re about to see the .
The Fate of the iPad: While Apple’s tablets are easily the best in the bunch, it hasn’t been the must-have product many hoped it would be; the high price keeps it out of reach for most consumers. In response to waning tablet sales, Apple revamped its iPad strategy almost two years ago to , even partnering up with once-rival International Business Machines Corp.
(IBM) to . The strategy has gotten a little traction, but not a great deal of it. It remains to be seen if the iPad will be able to offset the iPhone’s slowing sales. Problem is, nothing else is even close to being able to do so.
Focus on Digital Media: While Apple may have gotten the digital media business model rolling with its iPod device and subsequent iTunes venue, it’s allowed others to lap it on the on-demand video front. For a while it was primarily Netflix, Inc. (NFLX) creating a headwind for Apple’s completely different a la carte style of on-demand streaming video offer, but Amazon.com, Inc. (AMZN) has eased into the a la carte, as well as the space in the meantime. Meanwhile, Sling TV from DISH Network Corp (DISH) has also largely become a version of the cable television service Apple .
If Apple wants to sell more devices (and generate some recurring revenue for a change), it must do better with its digital media sales.
Bottom Line for Apple Stock
While Apple remains the iconic name in the consumer-tech space, it hasn’t been wildly impressive in years.
Investors have mostly overlooked that lack of a “wow” factor, giving Apple CEO Tim Cook some leeway to adjust to the next era of smartphones and digital content.
It’s been long enough, however, and if Apple’s revenue and iPhone sales have both fallen on a year-over-year basis in the company’s second quarter, the risk of the market finally turning on AAPL in a big way isn’t insignificant.
From here, Apple can’t afford to reveal any weaknesses.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
