An Early Apple (AAPL) Q4 2019 Earnings Preview: iPhone Sales, Services Growth & More

Shares of Apple AAPL hover just below their 52-week high as Wall Street prepares for the busy part of the September quarter earnings season. The iPhone giant’s stock has surged 18% since early August after it suffered a post Q3 earnings-release selloff.

Apple is scheduled to release its fourth-quarter fiscal 2019 financial results on Wednesday, October 30—which will be here before we know it. Now let’s dive into what to expect from Apple’s quarterly results, including iPhone and Services sales.

Apple’s Pitch

Apple has spent years developing its brand around the world through sleek tech and exceptional marketing. Forbes last ranked Apple as the most valuable brand in world, in front of Google GOOGL, Microsoft MSFT, Amazon AMZN, Facebook FB and Coca-Cola KO. It is this name recognition and clout that has helped Apple continue to grow and sell its high-priced iPhones, Macs, iPads, and more.

The company recently released its latest line of smartphones under the iPhone 11 banner at price points that roughly match last year’s new high-end models—after years of price hikes. Apple also lowered the price on some of its older models in order to provide more incentive to buy or upgrade during the vital holiday shopping period. Sales of Apple’s flagship smartphone have slipped recently and the firm has taken a hit in China amid the ongoing trade war, as consumers in the world’s second largest economy opt instead for any of the array of less expensive smartphone offerings.

Apple executives have known for years that they need to be more than an iPhone company. This makes the rise of its services business, which includes Spotify SPOT challenger Apple Music, its app store, and more, key. Going forward, Wall Street will want to see if its soon-to-be-launched streaming TV service can attract users, compete alongside Netflix NFLX and Disney DIS, and eventually make money. Along with Apple TV+, the company has a monthly magazine-heavy news service, an credit card, and a new Apple Arcade video game service.

Outlook & Comparisons

Before we look ahead, it is worth remembering that Apple’s iPhone and Greater China sales have fallen in each of the last three quarters, with iPhone sales down on the back of hard to compare periods. This means a 2020 turnaround is likely in store and Apple’s sales actually popped 1% last quarter (Q3 fiscal 2019) after revenue slipped 5.1% in Q2 and 4.5% in Q1.

Third-quarter 2019 iPhone sales still fell 12%, but that marked an improvement. Meanwhile, other units picked up the slack. “This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends,” CEO Tim Cook said in a statement.

Our current Zacks Consensus Estimates call for Apple’s Q4 2019 sales to slip 0.52% to $62.57 billion. This projected decline doesn’t look as bad when we consider that Apple’s revenue soared 20% in the fourth quarter of 2018.

AAPL’s overall fiscal 2019 revenue is projected to dip 2.7% to $258.43 billion, after FY18’s sales surged 16%, with FY17 up 6.3%.

Peeking further ahead, AAPL’s Q1 2020 (holiday shopping quarter) revenue is projected to pop 1.3%. Fiscal 2020’s sales are then expected to jump nearly 4% above our 2019 estimate to top 2018 and reach $268.39 billion.

At the bottom end of the income statement, Apple’s adjusted Q4 earnings are projected to slip 2.75%, with full-year 2019’s EPS figure set to fall 1.85%. As one might have guessed, Apple’s Q1 2020 earnings are projected to pop 6.7%, while FY20 is expected to come in 11.2% higher than our current-year estimate.

iPhone

Moving on, we will utilize our Key Company Metrics to see what to expect from two of Apple’s individual business units. Fourth-quarter iPhone sales are projected to come in at $32.41 billion to account for approximately 52% of revenue. This would represent a nearly 13% downturn from Q419, when iPhone sales skyrocketed 29%.

Services

Apple’s key services sales are projected to surge over 23% from $9.98 billion in the prior-year quarter to reach an impressive $12.32 billion. This would mark an improvement from the year-ago period’s 17% services expansion and blow away Q319’s 12.5% unit growth.

Bottom Line

The ongoing U.S.-China trade war remains at the forefront of many economic discussions and will likely loom over the fourth quarter, unless some type of a deal can be reached. With that said, Cook remains in contact with President Trump and its biggest products have remained untouched.

Apple stock closed regular trading Wednesday up 1.17% at $227.03 per share, just a few dollars below its 52-week highs. This could put pressure on Apple to post far stronger-than-projected results on Wednesday, October 30 in order to continue its recent climb. But we will have to wait and see.

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