What to expect from Apple's fourth quarter earnings report

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in AAPL Investors
Due to the announced later today, Apple's fourth quarter results are expected by analysts to be a high point among tech company financial reports, with revenue buoyed by the introduction of the iPhone XS and iPhone XS Max and the product line's growing average selling price.




The quarterly financial results release and accompanying analyst call with CEO Tim Cook and CFO Luca Maestri will detail the three-month period that ran until the end of September. While typically not the highest revenue-earning quarter, it is sometimes used as a barometer for the following quarter, which benefits from the holiday sales period.

Revenue and Earnings

Apple's guidance for the quarter from its Q3 results forecasts revenue at between $60 billion and $62 billion, with a gross margin between 38 percent and 38.5 percent. Operating expenses were expected to be between $7.95 billion and $8.05 billion, and a tax rate of around 15 percent.

Apple's quarterly revenue and net profit
Apple's quarterly revenue and net profit


Analysts appear to be suggesting the revenue will be at the upper end of the range, with a Refinitiv analyst survey reported by CNBC putting the figure at $61.57 billion, and Wedbush analyst Daniel Ives suggesting $61.6 billion according to U.S. News.

For reference, Apple advised revenue was $52.6 billion for the same quarter in 2017, making both analyst predictions and Apple's own guidance indicating growth of between 14 percent and 18 percent.

Shipments

Apple hasn't provided guidance for device shipments, but that hasn't stopped analysts from making predictions. Surveys from StreetAccount and FactSet put Apple as selling 47.5 million iPhones, 10.53 million iPads, and 4.87 million Macs. UBS advised on Wednesday it believes there will be 46.7 million iPhone shipments, whereas Loup Ventures' Gene Munster puts the figure at 48.1 million and Wedbush's Ives suggests 48 million.

In last year's results, Apple achieved 46.7 million iPhone shipments, which at face value suggests the analysts see growth, but not by much. This may be deceiving, as 2017's results was also an increase from the 45.4 million iPhones sold in the period for 2016.

As advised earlier, the bulk of Apple's iPhone sales happen during the holiday season, so a small improvement in the report won't be unexpected. The main event is in another three months.

While the quarter also includes the launch of new iPhone models, their arrival late in the quarter means they have a smaller impact than a release from earlier in the period. Also, this will only apply for the iPhone XS and iPhone XS Max, as the iPhone XR didn't ship until October, meaning it will only affect the December quarter results.

iPhone Average Selling Price

Probably the biggest thing analysts will be looking for will be an increase in the average selling price (ASP) of the iPhone. As shown with the iPhone X last year and continued with the iPhone XS and the more expensive iPhone XS, the higher prices of the new models can help push the average selling price of iPhones upwards.

Graph showing changes in iPhone ASP over time
Graph showing changes in iPhone ASP over time


Munster proposed the ASP of the iPhone could be $791, far above his Wall Street survey expectations of $756. UBS puts the ASP at $750 with its own survey resulting in $741. The analyst also argues this demonstrates Apple is finding more ways to earn money from an existing user base rather than relying on sales growth to increase revenue. Analyst Tony Sacconaghi of Bernstein predicts an iPhone ASP of $800, which would be the highest ASP for iPhones.

Despite arriving late in the period, the iPhone XS and XS Max will make up somewhere in the region of 16 percent of iPhones sold in the period, UBS claimed, while a survey of customers indicated 36 percent would be paying more than $900 for their chosen iPhone model.

The bigger question for analysts is whether the introduction of the cheaper iPhone XR will temper the ASP at all in the next quarter's results, with its far lower starting price potentially lowering the ASP. Even so, Wedbush's Ives suggests most of the iPhone XR sales will be the $899 model, which will increase the ASP rather than reducing it.

Services

Apple's Services arm is continuing to have steady growth and is a considerable revenue source for Apple, with it expecting to increase even more in this quarter. The arm, which includes iCloud, Apple Music, the App Store, and other elements, has proven to be quite reliable over the quarters, and has become something worth noting by analysts.

Munster specifically has expressed this could be part of a paradigm shift in how investors look at Apple as a "hardware business performing increasingly like a software business," which he terms as "Apple as a Service." While Munster believes Services will be down from the previous quarter's 28 percent growth, he still believes there will be 20 percent growth for this quarter.

Apple's services revenue through the third fiscal quarter of 2018
Apple's services revenue through the third fiscal quarter of 2018


Timothy O'shea of Jefferies Financial Group recently suggested the growth of the Services revenue will be ongoing, eventually resulting in it being 25 percent of revenue by 2020, and accounting for 40 percent of gross profit.

AppleInsider will offer full coverage of the earnings call later today, starting at 5 p.m. Eastern, 2 p.m. Pacific.

Comments

  • Reply 1 of 4
    I think it’s past time for Apple to stop providing any kind of guidance for these analysts. They treat the guidance as a baseline to be ignored.
  • Reply 2 of 4
    I think it’s past time for Apple to stop providing any kind of guidance for these analysts. They treat the guidance as a baseline to be ignored.
    Actually, I believe Apple’s guidance has the exact opposite effect. Wirhout Apple’s increasingly accurate guidance, “analysts” (I use the term advisedly) would almost certainly overstate their estimates, driving the stock price down when the reality “disappoints” three months later.

    Apple is already one of the most media-manipulated stocks out there, as witnessed by the appallingly manipulative Bloomberg story on Chinese espionage that “coincidentally” was released just as Apple went into it’s quiet period and could no longer buy back it’s own stock. It’s quite likely that, abetted by the chickens coming home to roost for many overpriced tech stocks, this single story lit the match that brought about one of the worst stock market drops in recent memory, to the benefit of many, many gamblers shorting AAPL and other tech stocks.

    I predict that the minute AAPL is back in the market this nonsense will cease - for a couple of months, when Apple will once more be barred from buying back it’s own stock.  Hopefully, however, it will linger long enough to increase Apple’s bang per self-investment buck substantially. As a long and strong AAPL investor, that would make the whole stupid exercise worthwhile for me.

    I’d gain far more pleasure, however, if publications like Bloomberg were taken down a peg or two when they pulled this crap....
    ABiteaDaybaconstang
  • Reply 3 of 4
    canukstormcanukstorm Posts: 1,796member
    What to look for is Q1 FY2019 guidance
  • Reply 4 of 4
    eightzeroeightzero Posts: 2,246member

    Apple Reports Fourth Quarter Results

    Revenue Up 20 Percent and EPS Up 41 Percent to New September Quarter Records

    Services Revenue of $10 Billion Reaches New All-Time High

    CUPERTINO, California — November 1, 2018 — Apple today announced financial results for its fiscal 2018 fourth quarter ended September 29, 2018. The Company posted quarterly revenue of $62.9 billion, an increase of 20 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.91, up 41 percent. International sales accounted for 61 percent of the quarter’s revenue.
    Services revenue reached an all-time high of $10 billion. Excluding a one-time favorable adjustment of $640 million recognized in the fourth quarter of fiscal 2017, Services revenue grew from $7.9 billion in the fourth quarter of fiscal 2017 to $10 billion in the fourth quarter of fiscal 2018, an increase of 27 percent.
    “We’re thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple’s history,” said Tim Cook, Apple’s CEO. “Over the past two months, we’ve delivered huge advancements for our customers through new versions of iPhone, Apple Watch, iPad and Mac as well as our four operating systems, and we enter the holiday season with our strongest lineup of products and services ever.”
    “We concluded a record year with our best September quarter ever, growing double digits in every geographic segment. We set September quarter revenue records for iPhone and Wearables and all-time quarterly records for Services and Mac,” said Luca Maestri, Apple’s CFO. “We generated $19.5 billion in operating cash flow and returned over $23 billion to shareholders in dividends and share repurchases in the September quarter, bringing total capital returned in fiscal 2018 to almost $90 billion.”  
    Apple is providing the following guidance for its fiscal 2019 first quarter:
    • revenue between $89 billion and $93 billion
    • gross margin between 38 percent and 38.5 percent
    • operating expenses between $8.7 billion and $8.8 billion
    • other income/(expense) of $300 million
    • tax rate of approximately 16.5 percent before discrete items
    Apple’s board of directors has declared a cash dividend of $0.73 per share of the Company’s common stock. The dividend is payable on November 15, 2018 to shareholders of record as of the close of business on November 12, 2018.
    Apple will provide live streaming of its Q4 2018 financial results conference call beginning at 2:00 p.m. PDT on November 1, 2018 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.
    Apple periodically provides information for investors on its corporate website, apple.com, and its investors relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance and details related to its annual meeting of shareholders.
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