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Will Slowing Services Growth Hurt Apple's (AAPL) Q3 Earnings?
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Apple’s (AAPL - Free Report) third-quarter fiscal 2023 results, to be reported on Aug 3, are expected to reflect the impacts of the sluggishness in the Services business.
The segment, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, accounted for 22% of sales in second-quarter fiscal 2023.
Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow.
Apple had more than 975 million paid subscribers across its Services portfolio at the end of the fiscal second quarter. This is expected to have increased in the to-be-reported quarter thanks to the growing installed base of Apple’s devices.
The App Store has been continuing to draw the attention of prominent developers from around the world, helping the company offer appealing apps to drive the App Store traffic, thereby expanding the subscriber base.
The company expects Services revenue growth to be negatively impacted by challenging macroeconomic conditions, unfavorable forex, as well as weakness in digital advertising and gaming. Services revenues grew 5.5% year over year to $20.91 billion in the fiscal second quarter.
Our model estimates for Services revenues are pegged at $20.98 billion, indicating 7% growth from the figure reported in the year-ago quarter.
Click here to know how Apple’s overall fiscal third-quarter results are likely to be.
Apple’s Non-iPhone Revenues to Decline in Q3
Apple’s non-iPhone portfolio, which comprises Mac, iPad and Wearables, is expected to have declined in the fiscal third quarter.
Mac revenues are expected to have suffered from weak PC demand. Per Gartner’s latest report, 59.7 million PCs were shipped in the second quarter (June-end) of 2023, down 16.6% from the year-ago period. Shipments from Lenovo (LNVGY - Free Report) , HP (HPQ - Free Report) and Dell Technologies (DELL - Free Report) declined 20.8%, 0.9% and 21.8%, respectively. Apple witnessed a 0.3% decline, much better than Lenovo, HP and Dell’s figures.
Overall, Lenovo remained the top vendor, with a market share of 24%. HP holds the second spot, with a market share of 22.5% in worldwide PC shipments. Dell’s market share was 17.4% in the second quarter of 2023.
Apple’s market share increased from 7.4% in second-quarter 2022 to 8.9% in second-quarter 2023.
Our model estimate for Mac revenues for the fiscal third quarter is pegged at $5.60 billion, implying a 24.1% decline from the figure reported in the year-ago quarter.
Moreover, for iPad our model suggests $5.58 billion, suggesting a 22.8% decline from the figure reported in the year-ago quarter.
Image: Bigstock
Will Slowing Services Growth Hurt Apple's (AAPL) Q3 Earnings?
Apple’s (AAPL - Free Report) third-quarter fiscal 2023 results, to be reported on Aug 3, are expected to reflect the impacts of the sluggishness in the Services business.
The segment, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, accounted for 22% of sales in second-quarter fiscal 2023.
Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow.
Apple had more than 975 million paid subscribers across its Services portfolio at the end of the fiscal second quarter. This is expected to have increased in the to-be-reported quarter thanks to the growing installed base of Apple’s devices.
The App Store has been continuing to draw the attention of prominent developers from around the world, helping the company offer appealing apps to drive the App Store traffic, thereby expanding the subscriber base.
Apple Inc. Revenue (TTM)
Apple Inc. revenue-ttm | Apple Inc. Quote
The company expects Services revenue growth to be negatively impacted by challenging macroeconomic conditions, unfavorable forex, as well as weakness in digital advertising and gaming. Services revenues grew 5.5% year over year to $20.91 billion in the fiscal second quarter.
Our model estimates for Services revenues are pegged at $20.98 billion, indicating 7% growth from the figure reported in the year-ago quarter.
Click here to know how Apple’s overall fiscal third-quarter results are likely to be.
Apple’s Non-iPhone Revenues to Decline in Q3
Apple’s non-iPhone portfolio, which comprises Mac, iPad and Wearables, is expected to have declined in the fiscal third quarter.
This Zacks Rank #3 (Hold) company expects Mac and iPad revenues to decline double digits on a year-over-year basis due to challenging comparisons and macroeconomic headwinds. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Mac revenues are expected to have suffered from weak PC demand. Per Gartner’s latest report, 59.7 million PCs were shipped in the second quarter (June-end) of 2023, down 16.6% from the year-ago period. Shipments from Lenovo (LNVGY - Free Report) , HP (HPQ - Free Report) and Dell Technologies (DELL - Free Report) declined 20.8%, 0.9% and 21.8%, respectively. Apple witnessed a 0.3% decline, much better than Lenovo, HP and Dell’s figures.
Overall, Lenovo remained the top vendor, with a market share of 24%. HP holds the second spot, with a market share of 22.5% in worldwide PC shipments. Dell’s market share was 17.4% in the second quarter of 2023.
Apple’s market share increased from 7.4% in second-quarter 2022 to 8.9% in second-quarter 2023.
Our model estimate for Mac revenues for the fiscal third quarter is pegged at $5.60 billion, implying a 24.1% decline from the figure reported in the year-ago quarter.
Moreover, for iPad our model suggests $5.58 billion, suggesting a 22.8% decline from the figure reported in the year-ago quarter.
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