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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.

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

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