Apple Expected To Join The $100 Billion Revenue Club When Earnings Are Released

Did someone say $100 billion? And then some?

Wall Street analysts did. A consensus sees Apple Inc AAPL as joining that rarefied corporate crowd that’s broken the $100 billion in quarterly revenues mark when it opens the books Wednesday on its fiscal Q1. 

That’s a record for AAPL, of course, and may have been assisted by holiday sales of its new iPhone 12. But it’s one in a series of fresh peaks AAPL has scored in a year—one the company acknowledged was rocked by adversity in many corners. Chief Financial Officer Luca Maestri said the strong results in last quarter’s report were driven by “the unmatched loyalty of our customers.”

That may or not be true, but when AAPL reports earnings, investors also will be listening to how well AAPL is playing the market share game. The work-from-home trend, fueled by the pandemic, looks like it might have been a game-changer for AAPL, according to Morningstar analysts who believe it powered sales of iPads, desktops, and laptops. All that could be overshadowed in fiscal Q1 by iPhone 12 holiday sales, which it’s probably safe to say will get a fair share of attention Wednesday afternoon following the closing bell.

AAPL has always been an attention-getter when earnings season rolls around, and now, with it sporting a $2.34 trillion market cap and reaching new stock price highs, it looks like it’s sure to take a spot under the limelight even when it’s up against a host of other high-profile tech stocks earnings results this week. Tesla Inc TSLA and Facebook, Inc. FB report the same afternoon.

The Numbers

Wall Street analysts expect AAPL revenue to jump 12% year-over-year to about $103 billion, according to FactSet. But some firms, such as Loup Ventures, are looking for much stronger numbers: up 19% to $109.5 billion. From an earnings perspective, the Street has reached a consensus of $1.41 a share.

Morgan Stanley MS is also forecasting on the high side of consensus, eyeing revenues of $108.2 billion and earnings per share of $1.50.

“Our recent conversations suggest investors expect Apple to release solid, but not great, December quarter results,” Morgan Stanley analysts wrote in a recent report. “We disagree and believe that Apple is likely to report all-time record quarterly revenue and earnings.

“In our view, the iPhone 12 has been Apple’s most successful product launch in the last five years,” they said. More on that later.

Any way you look at it, the numbers look robust.

The Innovation Machine

AAPL stopped giving guidance last year—kind of like many other companies uncertain of the ramifications of COVID-19 on their sales. In March, no one knew what the ricochet effects of the pandemic might be or how long it might last.

We still don’t know all of that, but we have found that the city- and state-mandated quarantines and the overall fear of being in public helped fast-forward many trends that were already picking up steam. The digital transformation sped up, and it looks like AAPL might have been well-positioned for it.

While the iPhone 12 might get most of the attention Wednesday, think back to last quarter when CEO Tim Cook noted all-time records for Mac and Services. Though he didn’t offer guidance for this past quarter per se, he did suggest double-digit gains on all product categories except the iPhone 12, which he thought would reach single-digit gains.

FIGURE 1: APPLE LEAVES INDEX IN THE DUST. Over the last year, shares of Apple (AAPL—candlestick) have easily outpaced the Nasdaq-100 Index (NDX—purple line). Apple shares got off to a quick start in 2021, with investors apparently enthusiastic about tomorrow’s Q1 earnings prospects. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

The Mighty iPhone 5G Launch

Despite all the happy talk about fiscal Q4 revenues, iPhone’s weaker-than-expected sales offset the glee and pulled shares down nearly 6% in the first couple of days after the October earnings release. They have since recovered.

AAPL reported iPhone sales of $26.4 billion in fiscal Q4, below the $27.73 billion expected by the Street. Much of that shortfall was attributed to AAPL’s decision to push the iPhone 12 launch into this most recent quarter, a move many believe may have led to consumers waiting for the upgrade before they bought.

Back then, some analysts said a move to 5G could end up being a tailwind for the iPhone 12 with sales promotions and subscription services bundles. That, combined with the important holiday shopping season about to begin, could have led to a fast start for the new phone. We’ll see now if they were right.

Analysts are mostly bullish on their iPhone sales expectations, with some saying the delay might have pushed around $4 billion in iPhone sales to the December quarter from the fiscal Q3. The Street’s consensus last stood at $59.58 billion, up better than 6% on a year-over-year basis.

But Loup Ventures thinks that’s conservative. It’s looking for sales to vault 16% on a year-over-year basis to $64.9 billion, jumping to 59% of total sales compared with the iPhone’s typical 50% of sales standing. It’s unclear if that will actually be the case, but if it is it would reverse a trend in recent years toward iPhones being less of AAPL’s total revenue. The company has been emphasizing growth in services.

Remember, we’re just two years out from January 2019 when Cook sent a letter to AAPL investors warning of a fiscal Q1 earnings shortfall due in part to weak iPhone sales in China. How things have changed.

AAPL Earnings And Options Activity

AAPL is expected to report an adjusted EPS of $1.41, up from $1.25 in the prior-year quarter, according to third-party consensus analyst estimates. Revenue is projected at $103.01 billion, up 16.4% from a year ago.

The options market has priced in an expected share price move of 6.2% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. 

Looking at the Jan. 29 options expiration, puts have been active at the 125 and 135 strikes. But it’s been dwarfed by activity to the upside, heavy call volume at the 145 and 150 strikes. The implied volatility sits at the 34th percentile as of Tuesday morning. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Home Work And Its Tools

The work- and study-from-home phenomenon helped drive sales of Macs and iPads last year, and analysts widely expect that trend continued into the fiscal Q1.

A number of bells and whistles were added to new iPads and iPad Airs, and new computers with AAPL’s custom M1 chip replacing the Intel Corporation INTC chip also hit the market. AAPL also is reportedly working on a new iPad Pro expected to be released in mid-March. There’s also talk on Wall Street that AAPL might have patented a new version of the Magic Keyboard for the iPad Pro.

Given Cook’s comments about the “most prolific product introduction period,” analysts widely expect to hear about other new products coming on line.

An update of the MacBook Air is one of those possible developments. AAPL is working on a thinner and lighter version of the MacBook Air, Bloomberg reported late last week, citing “people with knowledge of the matter. Analysts said they want to know if the planned release in the second half of this year is on track.

Analysts at Monness, Crespi, Hardt & Co. expect AAPL to shed light on several new products and services, including how sales are going for its $549 AirPods Max over-the-ear headphones and the subscription Apple Fitness+ offering, plus ways to bundle services together for a discount.

“In our view, Apple’s portfolio was positioned better-than-ever heading into the recent holiday season, while product and service updates position Planet Apple well in 2021,” the team wrote.

And So Much More

Among the myriad reasons AAPL’s earnings are such a magnet goes beyond products Other factors underscoring the company’s progress range from privacy concerns to app developer fees to government interventions and the overall economy.

AAPL has done much to address many of these issues, but each quarter tends to introduce a fresh crop. In November, for example, AAPL said it would cut in half the commissions it charges smaller developers who sell software through the App Store and generate under $1 million in sales.

AAPL’s original 30% take has long fueled complaints from developers, users and governments over its dominance in the digital world. The price cut to 15% appeased some but not all stakeholders and analysts hope the company will address how the cuts are panning out in the beginning weeks.

Another question heading into earnings is AAPL’s cash position. The total cash trove stood at roughly $192 billion at the end of the company’s fiscal Q4, with about $112 billion in debt and a little more than $79 billion in cash. AAPL returned nearly $22 billion to shareholders in the form of buybacks and dividends.

Investors can expect to continue to see more of that ahead, according to Loup Ventures, which estimates an additional $73 billion will be returned in coming years.

TD Ameritrade^® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Photo by Trac Vu on Unsplash