APPLE Q2 Earnings Preview 2020

APPLE, Daily & Weekly

The world’s largest company, APPLE (APPL), report their 2nd quarter earnings ending March 31st after the close of the New York stock market on April 30th. The consensus among analysts is for revenues of $53.8 billion versus $58 billion in Q2 2019 and earnings per share (EPS) of $2.23 versus $2.47 in Q2 2019.

Apple hardware has been clearly hit from the disruption in the supply chains, starting with factories and shops in China and rippling out across the wider distribution and production facilities in Asia, Europe and then North and Latin America. iPhone sales are likely to miss estimates, possibly considerably. (Bank of America have the gloomiest outlook with revenues down 32%).

Hardware design and functionality have always been at the core of what Apple does and the big move in recent years has been away from this dominance of hardware (even though the iPhone still accounts for over 60% of revenues) to invest significantly in services. The initial move was a partnership in 2015 with IBM and Cisco to try to break into the corporate market; this has been followed by Apple Pay and more recently the long awaited upgrade for Apple TV.

Apple TV+ was launched in November 2019. Initially it was only to be in the USA but it was then made available to 100 countries at an extremely competitive $4.99 per month. Apple has entered a very crowded video-streaming marketplace, which remains dominated by Netflix, but includes Amazon and Disney. Apple Services is a growing revenue stream within the technology giant and TV+ marks its latest attempt to diversify its dependence from the ubiquitous iPhone. The aggressive pricing structuring, undercutting its competitors, is a break from traditional Apple pricing models. However, the poor reviews and weak content in the first few months of launch have been disappointing. Disney+ with a huge back-catalogue and equally as aggressive pricing has been the new winner in the streaming wars. Netflix missed expectations last week, but as subscriber numbers continue to grow, what will we see for AppleTV+?

Overall the services and wearables business, including sales of AirPods and Apple Watch consumables is expected to show a hefty 17-24% growth year on year.

In the midst of the Pandemic, Apple announced the launch of the iPhone SE (April 24), retailing at $399.00, but what the market will be expecting will be announcements of factory and shop re-openings in Asia and China in particular, and news of the G5 enabled iPhone, due for launch at the annual Apple September (probably now October) launch event. The issue of the cut price iPhone could be a simple churn of existing sales rather than any enhancement of new replacement units.

The major Wall Street banks have price targets for the stock ranging from JP Morgan (Overweight) at $335 to Goldman Sachs (Sell) at $235. The consensus among 39 analyst is a target price of $303 with 29 of the 39 recommending a Buy or Strong Buy rating and 3 of the 39 with a Sell rating. The stock closed (April 29) at $287.73 up 3.28% on the day and 13% for the month and some 12% below the all-time high at $327.85.

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Stuart Cowell

Head Market Analyst

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