After Amazon and Facebook’s blockbuster results reports late last week and an impressive showing from Netflix the previous week, big tech has roared back from Facebook’s data breach scandal and last month’s sell off. Later today its Apple’s turn, as the world’s largest company by market capitalisation gets ready to reveal its 2018 Q2 performance to investors.
However, the hugely impressive results of Apple’s Faang peers and concerns over slowing growth in iPhone sales means that those investing online in Apple stock are more nervous than usual. The earnings report, which will be published following Wall Street’s closing bell on Tuesday, has taken on far more significance than normal.
The results themselves, and how the company’s investors choose to react to them, could go a long way to deciding if the Apple share price will stay high enough over the remainder of 2018 to keep Amazon at bay. The online retail, tech and cloud computing juggernaut leapfrogged Alphabet as the world’s second largest company following its own results, which blew analyst forecasts away. With its present rate of growth, both Apple’s top dog position and the target of becoming the world’s first $1 trillion company are now within sight.
Apple investors have traditionally focused on the growth figure for global iPhone sales. However, the phenomenal rate of growth in this metric over the past decade always had to slow at some point. And despite the fact that there is still growth in demand for the flagship smartphones in huge emerging markets like China and India, analysts are predicting today’s results will show the pace of growth is slowing. Last year, the company’s Q2 results showed unit sales were flat year-on-year at 50.76 million. Analysts are predicting this year’s sales to show between 52 and 53 million units have been sold, though some have downgraded that to 48 million.
If it turns out to be the case that sales have been flat, or have slipped, the question becomes how investors react to other key metrics. Apple launched the iPhone X last autumn and the most expensive ever iPhone model by some margin was always going to constitute a risk. Sales figures have been reported as soft, with manufacturing orders reduced earlier this year. However, investors will be keen to see if the handset’s higher price compensates.
Last year the average selling price of iPhone units was $655, up 2% year-on-year. Morgan Stanley has this year put the analyst consensus for the average selling price per unit at $741. Some market observers believe that may be aggressive but the actual figure reported today will go a long way to influencing how results are accepted and how the Apple share price subsequently reacts.
The other big factor that will influence Apple’s share price in coming months will be any information around how the company plans to return capital to investors. Apple is sitting on a cash pile of $163 billion, which three months ago the company said it intends to reduce to nothing over the coming years. While some of that is expected to be ploughed into M&A deals, as much as $100 billion could be returned to shareholders through special dividends and share buy backs. It is believed that prospect has gone a long way to propping up the Apple share price this year. However, a one-off ‘special dividend’ being announced today appears to be a long shot with CEO Tim Cook having gone on record as not being ‘a fan’ of them.
Revenue growth in services such as Apple Music and the App Store will also be keenly looked for as will the company’s ‘Other Products’ unit that includes the Apple Watch and HomePod smart speakers. Some analysts have predicted revenue growth of over 40% in the ‘Other Products’ category and at least matching those forecasts will be important.
A new iPhone model is due to be revealed in September and supply chain efficiencies are in progress. How successful Apple is in maintaining iPhone sales over the next few months until those boosts kick in will be key to whether the company can hold Amazon at bay and keep share price steady.
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