Apple earnings look ahead

Apple’s earnings will see plenty of focus on hardware, but perhaps it is the services element that deserves more attention.

Apple
Source: Bloomberg

Demand for iPhones is in relative decline — the years of easy growth for sales of the iconic gadget are now far behind us. We will see the usual focus on sales of actual devices, but the real interest will come as Apple transforms itself from a manufacturer of gadgets to one that monetises its services, much like Facebook. Services now account for around 25% of operating income, even while the division makes up just 14% of revenue.

In the past year, Apple services have generated as much revenue as all of Facebook; the focus on expanding units such as iTunes, Apple Pay and other services is beginning to pay off, and acts as vital diversification away from the iPhone and other hardware. Apple Pay’s transaction volume in September 2016 alone exceed that seen for all of 2015. In the meantime, iPhone usage continues to grow, even if growth is slowing, so this provides an expanding pool of potential revenue for Apple services.

Apple shares bottomed out around $90 during the course of 2016. Since then, dip buyers have been rewarded, with the shares returning some 16% since the November low. $122 marked the peak in October and also so far this week, but the next levels to watch would be $123.80 and then $133. A drop could find support around $115, or even down towards $112.

Expected EPS: $3.22, down 1.7% YoY

Expected revenue: $77.4 billion, up 2% YoY

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.