To The Moon

Robust demand for the tech giant's products and services could help ‌$Apple(AAPL)$‌ exceed expectations.

Investors, however, can expect Apple stock to get a nice boost when it releases its fiscal 2022 second-quarter results for the three months ended March 26, on April 28. Let's look at what's expected from Apple in Q2 and why the stage seems set for another round of solid numbers from the tech giant

Solid iPhone demand could help Apple exceed expectations

When Apple released its fiscal first-quarter results in January this year, the company decided against issuing formal guidance, citing "continued uncertainty around the world in the near term." However, CFO Luca Maestri did point out on the company's January earnings conference call that Apple could "achieve solid year-over-year revenue growth and set a March quarter revenue record despite significant supply constraints."

Maestri also added that the supply chain constraints in the March quarter are likely to be less than what the company experienced during the fiscal first quarter, which ended in December. This explains why Wall Street expects Apple to deliver $94 billion in fiscal Q2 revenue -- a 5% increase over the prior-year period's record revenue of $89.6 billion.

The year-over-year increase may appear a tad slow at first glance. However, investors shouldn't forget that the late launch of the iPhone 12 in the first quarter of fiscal 2021 (period ended December 2020) meant the demand for the device had carried forward into Q2 2021 (March 2021). For comparison, the iPhone 13 models have been on sale since the fourth quarter of fiscal 2021, so Apple is facing tougher year-over-year comparisons.

Still, Maestri's commentary is an indication that the demand for Apple's products remained strong last quarter. Even analysts are anticipating something similar as the higher end of Apple's Q2 revenue estimate sits at $100.4 billion, which would translate into double-digit year-over-year growth for the company.

It won't be surprising to see Apple hit the higher end of Wall Street's guidance. Morgan Stanley analyst Katy Huberty forecasts a 10% year-over-year increase in iPhone shipments in the second quarter, driven by robust demand for the iPhone 13 lineup. The company had shipped an estimated 60 million iPhones in the year-ago quarter, indicating that it may have shipped around 66 million iPhones this time.

Huberty has also raised her iPhone average selling price (ASP) estimate to $878 from the prior estimate of $848. The increase in Apple's iPhone ASP can be credited to a more favorable sales mix. According to Huberty, the iPhone 13 accounted for 69% of Apple's smartphone sales last quarter, with another 16% coming from the iPhone 12 lineup. So 5G devices are estimated to have accounted for 85% of Apple's iPhone sales last quarter. That should have favorably impacted the company's top and bottom lines as it is enjoying impressive pricing power in the 5G smartphone era.

Assuming shipments of 66 million units, Huberty's estimated ASP points toward $58 billion in iPhone revenue for the second quarter, up nearly 21% over the year-ago period's iPhone revenue of $47.9 billion. As the iPhone is Apple's largest source of revenue, producing 58% of its top line in the first quarter of fiscal 2022, a solid showing from this product line could help Apple deliver better-than-expected results.

Analysts are expecting the company to report earnings of $1.43 per share, which would be a small jump over the prior-year period's figure of $1.40 per share. However, a combination of higher volumes and improved pricing should rub off positively on Apple's bottom line and help it report stronger numbers.

More reasons to be bullish

Beyond the iPhone, Apple's Mac and services businesses are also expected to aid the company's growth. Mac shipments are estimated to have hit 7.2 million last quarter, ahead of the analyst estimate of 6 million units. As a result, Apple's fiscal Q2 Mac revenue could come in at $9.5 billion, according to Huberty, compared to $9.1 billion in the prior-year period.

Meanwhile, the services business is estimated to have clocked nearly $20 billion in revenue last quarter, which would translate into an 18% increase over the year-ago quarter. The increase in Apple's installed base of customers thanks to the higher sales of its devices and robust user engagement have been tailwinds for the services business, and the trend seems to have continued last quarter.

It is also worth noting that the services business carries a significantly higher gross margin as compared to the products Apple sells. So, impressive growth on the services front should have a positive bearing on the company's earnings.

There are several reasons to believe Apple is headed for another record quarter. Stronger-than-expected numbers could send the tech stock soaring, which is why investors who are still on the sidelines may want to buy Apple before it becomes expensive.