Apple (AAPL) Earnings Preview: It’s All About the iPhone

Thursday’s Apple earnings report should provide hints about demand for the new iPhone 8 and upcoming iPhone X.

Apple (AAPL, $169.04) euphoria is at a fever pitch. Consumers are anxiously waiting for Friday, when Apple will make its first deliveries of the iPhone X – the sky-high-priced 10th anniversary edition of the company’s ubiquitous smartphone. Meanwhile, investors have driven AAPL shares 7% higher in just one week in the run-up to Thursday evening’s report for the company’s fiscal fourth quarter ended Sept. 30.

Given that Apple's stock sits at an all-time high – amid a breathtaking 46% year-to-date run that has roughly tripled the broader market’s performance – it’s essential that the company deliver a rosy report this week.

If Wall Street’s analyst community is any indication, that’s what investors will get.

Apple Earnings Expectations

Apple’s fourth-quarter figures will be an early gauge of the success of the iPhone 8 and 8 Plus, which launched in late September. Meanwhile, forward guidance should give Wall Street some idea for how optimistic Apple is about its entire iPhone lineup. That includes the iPhone X, which at a $999 starting price is its most expensive smartphone ever, and sold out within minutes of its first pre-order availability.

These are the numbers that ultimately will make or break Apple’s momentum. While the company is trying to diversify and reduce its reliance on iPhone sales, the gadget still accounts for 55% of revenues; the next closest contributor is services (such as iTunes and the App Store) at 16%.

Those revenues should come to $50.8 billion for the quarter, according to analysts’ consensus estimates. That would represent 8.4% growth, and is expected to filter down to a 24.7% improvement on the bottom line to $1.87 per share. That figure is higher than the $1.81 estimate that stood 90 days ago. If you’re looking for a flashier sign of optimism from the analyst community, train your eyes down the road. In the past 30 days alone, eight analysts have revised their fiscal 2018 profit guidance higher.

Based on their comments, that’s largely because of optimism about Apple’s latest line of iPhones.

GBH Insights analyst Daniel Ives predicted record smartphone sales for Apple in a note that included a “Highly Attractive” rating (equivalent of buy) and a price target range of $190 to $200 that would imply a market capitalization of more than $1 trillion at the high end.

Despite hurdles such as supply chain issues and a delayed release for the iPhone X, Ives says “the iPhone X product cycle could be the strongest iPhone product cycle to date” and believes Apple will sell 265 million iPhones in the coming fiscal year. He also compared the current level of pent-up demand to the iPhone 6, which saw “unprecedented” success and helped drive 231 million iPhone sales in the 2015 fiscal year.

KeyBanc analyst Andy Hargreaves also shrugged off supply chain issues, telling CNBC that pent-up demand is “certainly better than the alternative.” And Nomura’s Jeffrey Kvaal wrote that he’s optimistic about the iPhone X because shipment times for pre-orders have swelled out to five to six weeks – much better than the iPhone 7 Plus and iPhone 6/6S launches.

However, holders of AAPL shares should be aware of a couple of signs of weakness.

Consumer Intelligence Research Partners estimates that the iPhone 8 and 8 Plus made up just 16% of all U.S. iPhone sales during the fiscal fourth quarter – a significantly smaller share than than past two releases. While that could be a result of pent-up demand for the upcoming iPhone X, that still could weigh on Q4’s numbers.

And bullish estimates from smartphone research firm Canalys signaling a rebound in Chinese iPhone shipments came with a caveat. Although shipments jumped 38% year-over-year to 11 million units, analyst Mo Jia believes the growth is temporary and called the iPhone X’s pricing structure and supply “inhibiting.”

Most Popular

Dying Careers You May Want to Steer Clear Of

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021


Kiplinger's Weekly Earnings Calendar

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
September 24, 2021
Hot Upcoming IPOs to Watch For in the Rest of 2021
Kiplinger's Investing Outlook

Hot Upcoming IPOs to Watch For in the Rest of 2021

The most exciting initial public offerings (IPOs) expected during the remainder of 2021 range from an Amazon-backed EV play to a food delivery app to …
September 23, 2021
ETFs and Mutual Funds with Todd Rosenbluth
Index Funds

ETFs and Mutual Funds with Todd Rosenbluth

Which is better: ETFs or mutual funds? And how do you decide where to put your investments? CFRA fund expert Todd Rosenbluth has some answers. Also, h…
September 22, 2021
These 2 Emotional Biases Could Kill Your Retirement
Investor Psychology

These 2 Emotional Biases Could Kill Your Retirement

Are your emotions sabotaging your retirement plans? Some basic knowledge and careful introspection can go a long way toward avoiding major pitfalls.
September 20, 2021