It is expected Apple to report fiscal 3Q results in line with current consensus on sales and margins, as the third quarter is usually a seasonally weak period. Macs might be the only product category that post better-than-consensus figures.
Apple Inc. is slated to report fiscal third-quarter results after the market closes on Thursday, August 3. Its stock has surged almost 50% this year, pushing its market capitalization to $3 trillion.
Apple's third quarter revenue is expected to be $81.53 billion, with an adjusted net profit of $18.819 billion and an adjusted EPS of $1.203, according to Bloomberg's consensus expectations.
Previous quarter review
Sales of Apple Inc.’s iPhone rebounded in the fiscal second quarter, helping the world’s most valuable company top earnings estimates and weather an industrywide downturn that has battered much of its product lineup.
Overall revenue amounted to $94.8 billion, exceeding the $92.6 billion analysts predicted. The results suggest that Apple is beginning to recover from a slump that’s plagued both the computer and smartphone industries. Apple’s sales in China — a weak spot for other tech companies — also came in a bit better than expected.
Though the performance was better than expected, it marked two straight quarters of sales declines — a first for Apple since the pandemic began. Earnings, meanwhile, were unchanged from a year earlier, at $1.52 a share. That compared with an average estimate of $1.43 a share.
What to expect on 3Q results
iPhone sales may slide while market share surges
Apple and its rivals are grappling with sharp declines in demand for smartphones. The global smartphone market now seems to be well past its rapid growth phase, with consumer replacement cycles getting longer.
Global smartphones sell-through declined 8% YoY in Q2 2023. This year, Apple had to trim the forecast for its upcoming entry-level phones by about 2 million due to a production challenge with CMOS image sensors, but it compensated for the dip by adding orders for higher-priced Pro models.
Counterpoint estimates that Apple’s sales slid 2% in the most recent quarter, but its market share rose to 17% because of continuing growth in demand for phones selling at $600 or more, recording its highest-ever Q2 market share.
“Apple is riding this ‘premiumization’ wave, reaching record shares in multiple new markets which are typically not considered its core markets,” Counterpoint analysts wrote in the report. “A prime example is India,” they said, where Apple grew 50% year over year in the second quarter.
Macs may post better-than-consensus figures
Macs might be the only product category that post better-than-consensus figures for fiscal 3Q results, as International Data Corporation (IDC) reported a 10% jump in shipments compared to last year. The growth was largely due to the relatively low Q2 2022 and partially due to new product launches.
Goldman’s analyst forecasts Mac revenue of $9.4 billion, up from a prior estimate of $9.3B and comes in significantly higher than Wall Street 's consensus Mac revenue of $6.3 billion.
Apple launched three new Macs in the quarter, including a 15-inch MacBook Air, an updated Mac Studio, and an updated Mac Pro, to better compete with Windows PCs and reverse a sales slide that plagued its most recent earnings. The new lineup may give consumers a fresh reason to upgrade, especially since many have been clamoring for a larger MacBook Air.
Services revenue is expected to grow 11% YoY
Goldman said it expects Services revenue to hit $21.8 billion — an 11% year-over-year growth — which would come ahead of the consensus $20.7 billion estimate when the company issues earnings on Aug. 3.
The analyst said expected Services growth is attributed to a surge in App Store spending, growth in advertising, continuous content investments in AppleTV and a more benign foreign exchange headwind.
Vision Pro Is A New Milestone for Mixed Reality
The iPhone maker unveiled the new Vision Pro headset at its annual Worldwide Developers Conference. The product vaults Apple into the first major new category since it began selling smartwatches in 2015. The launch of Apple Inc's Vision Pro headset has sparked interest in the virtual and augmented reality (AR/VR) space after a slowdown in funding leading up to the launch.
The Vision Pro also could be one of the riskiest launches in the company’s history. The AR/VR industry has seen its share of challenges and failures, with other industry giants like Alphabet Inc Google dumping its smart glasses project.
Investors remained wary about making bets in the AR/VR sector without clear signals from industry leaders. Despite the price tag of $3,500 and a vague release date, investors are focusing on the market validation that Vision Pro provides.
Will Apple add AI to more of its products?
Bloomberg reported some big developments for Apple in the AI space. The company has apparently launched an internal AI chatbot service for employees to test out. So far, little more than rumors have been disclosed; however, with the impact of generative AI, it is an obvious opportunity for Apple.
Tim Cook discussed AI during his May earnings conference call, indicating that Apple will be adding AI to more of its products.
Apple is far more focused on product sales via iPhones and Macs with the majority of software development for operating these products. The tech giant utilizes Google search on iPhones and doesn't have a current system for monetizing generative AI.
Apple is already far behind Microsoft with its huge investment in ChatGPT owner OpenAI, and also Alphabet/Google with a long history of AI investments and the Bard product. Both companies have huge plans to tie generative AI into internet search products for future monetization.
Analyst opinions
Barclays says Sep-Q guidance could miss estimates
Barclays analysts think that they believe Apple's September quarter guidance could miss Street estimates.
The analysts, who have an Equal Weight rating and $149 price target on the stock, added that despite the potential miss, it's not clear that it matters for the stock as "bulls may expect a stronger Dec-Q."
"We expect broadly in-line June Q as better services revenue (led by App Store, TAC also above) offsetting weaker hardware revenue, though iPhone channel fill and incremental better FX vs. guidance (2 points FX upside) can mute some of the downside for hardware," they wrote.
"More importantly, Sep-Q hardware guide could miss Street estimates due to IP15 delay and some IP15 pro model units shifting to Dec-Q."
Bernstein reiterates Apple as market perform
Bernstein raised its price target on the stock to $195 per share from $175 and said it’s cautious on the stock heading into earnings next week but it sees some areas of potential upside.
“We expect Apple’s FY Q3 to be largely in line on revenues - we model $81.2B vs. consensus at $81.8B, and consistent with Apple’s guidance - but see some potential upside for services amid a conservative guide and a cyclical recovery in digital advertising.”
Goldman Sachs Says Apple Is Primed For Q3 Earnings Beat
Analysts at Goldman Sachs expect Apple Inc to beat the $1.19 consensus earnings per share forecast with an EPS of $1.21 when the company issues earnings on Aug. 3, based on the strong performance of Mac and Services.
The Apple Analyst Michael Ng reiterated a Buy rating on the Cupertino, California-based tech giant, and set a 12-month price target of $222 on the stock.
Ng acknowledged concerns around valuation and downside risks due to shares of Apple being up 48% year-to-date, fueled entirely by multiple expansion. The analyst remained positive, emphasizing the growing iPhone installed base is a cornerstone for increasing monetization per user and supports Apple’s premium valuation.