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Apple expects third-quarter fiscal 2024 revenues to grow low single digits year over year. Unfavorable forex is expected to hurt revenues by 2.5%.
The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $84.02 billion, indicating growth of 2.71% year over year.
The consensus mark for earnings is currently pegged at $1.34 per share, up by a penny over the past 30 days. The figure indicates a 6.35% increase from the figure reported in the year-ago quarter.
AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 4.14%, on average.
Let’s see how things are shaping up prior to this announcement.
iPhone Sales Likely to Decline in Fiscal Q3
Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 50.6% of net sales in the second quarter of fiscal 2024, wherein sales decreased 10.5% year over year to $46 billion.
Apple is expected to have struggled in China amid significant competition from domestic handset makers. Per IDC, China’s smartphone shipments grew 8.9% year over year to 71.6 million units in the second quarter of calendar 2024, driven by robust performance from Vivo, Huawei and Xiaomi. Apple is expected to have witnessed a 3.1% year-over-year decline.
Per the latest Canalys report on worldwide smartphone shipments, Apple’s market share was 16% in the second quarter of calendar 2024, trailing Samsung’s 18%. While sequentially, AAPL’s market share was unchanged, it dropped 100 basis points year over year.
The Zacks Consensus Estimate for fiscal third-quarter iPhone net sales is pegged at $38.74 billion, suggesting a 2.3% year-over-year decline.
Services Growth to Remain Steady in Fiscal Q3
The weakness in iPhone sales is expected to be partially negated by the steady growth of the Services segment. An expanding paid subscriber base has been a key catalyst for the Services business, which is riding on the increasing popularity of the App Store and an expanding installed base of devices, albeit a worsening regulatory environment.
Apple has more than 1 billion paid subscribers across its Services portfolio, which offers Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle.
Mac Sales to Rise Y/Y
Apple’s Mac sales are expected to have jumped 20.8% year over year in the second quarter of calendar 2024, per IDC data. The iPhone maker is estimated to have shipped 5.7 million Macs, thereby grabbing a market share of 8.8% compared with 7.5% in the year-ago quarter.
Apple’s estimated shipment growth rate is the largest in IDC’s vendor list. While shipments of Acer Group, Lenovo and HP (HPQ - Free Report) are expected to have grown 13.7%, 3.7% and 1.8%, respectively, Dell Technologies (DELL - Free Report) is likely to have declined 2.4%.
IDC estimates 64.9 million sold units in the second quarter of 2024, up 3% year over year. In contrast, Gartner estimates shipment of 60.6 million units, up 1.9% year over year. In Gartner’s list also Apple gains the most in terms of shipments (up 13.1%) as well as market share (9% versus 8.1% in the year-ago quarter).
AAPL Shares Underperform Sector, S&P 500
Apple shares have gained 13.2%, underperforming the Zacks Computer & Technology sector’s return of 18.3% and the S&P 500’s 14.5%.
Year-to-Date Performance Chart
Image Source: Zacks Investment Research
Apple stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Earnings ratio, AAPL is trading at 30.06X, higher than the Zacks Computer & Technology sector’s 26.44X.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
AI Focus Aids AAPL’s Long-Term Prospects
AAPL has been on the investors' radar thanks to its AI push with the introduction of Apple Intelligence, an advanced personal intelligence system seamlessly integrated into iOS 18, iPadOS 18 and macOS Sequoia.
Apple’s AI push is expected to bring consumer-focused AI-enabled PCs into the market, thereby aiding PC shipments in the long haul.
AAPL has been playing catch-up in the AI space compared with Alphabet, Microsoft (MSFT - Free Report) and Amazon, its peers in the “magnificent seven” group. Following the launch of Apple Intelligence, its competitive position is expected to improve.
Leveraging the power of GenAI models, Apple Intelligence aims to enhance user experience across iPhone, iPad and Mac by combining robust language and image understanding with personal context. Siri, powered by Apple Intelligence, has become more natural, contextually aware and capable of handling complex tasks.
Siri’s functionality now extends to providing device support and answering detailed questions about using the iPhone, iPad and Mac.
Apple’s integration with ChatGPT improves user experience. Siri can utilize ChatGPT’s capabilities with user consent to provide more detailed and accurate information.
Conclusion
Apple’s near-term results are expected to bear the brunt of the weakness in China. However, it is benefiting from increasing customer engagement in the services segment. The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth.
Apple’s top line is likely to have benefited from strong growth in emerging markets and growing adoption of its devices among enterprises.
Image: Bigstock
Should Apple (AAPL) Stock be in Your Portfolio Pre-Q3 Earnings?
Apple (AAPL - Free Report) is set to report its third-quarter fiscal 2024 results on Aug 1.
Apple expects third-quarter fiscal 2024 revenues to grow low single digits year over year. Unfavorable forex is expected to hurt revenues by 2.5%.
The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $84.02 billion, indicating growth of 2.71% year over year.
The consensus mark for earnings is currently pegged at $1.34 per share, up by a penny over the past 30 days. The figure indicates a 6.35% increase from the figure reported in the year-ago quarter.
AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 4.14%, on average.
Apple Inc. Price and EPS Surprise
Apple Inc. price-eps-surprise | Apple Inc. Quote
Let’s see how things are shaping up prior to this announcement.
iPhone Sales Likely to Decline in Fiscal Q3
Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 50.6% of net sales in the second quarter of fiscal 2024, wherein sales decreased 10.5% year over year to $46 billion.
Apple is expected to have struggled in China amid significant competition from domestic handset makers. Per IDC, China’s smartphone shipments grew 8.9% year over year to 71.6 million units in the second quarter of calendar 2024, driven by robust performance from Vivo, Huawei and Xiaomi. Apple is expected to have witnessed a 3.1% year-over-year decline.
Per the latest Canalys report on worldwide smartphone shipments, Apple’s market share was 16% in the second quarter of calendar 2024, trailing Samsung’s 18%. While sequentially, AAPL’s market share was unchanged, it dropped 100 basis points year over year.
The Zacks Consensus Estimate for fiscal third-quarter iPhone net sales is pegged at $38.74 billion, suggesting a 2.3% year-over-year decline.
Services Growth to Remain Steady in Fiscal Q3
The weakness in iPhone sales is expected to be partially negated by the steady growth of the Services segment. An expanding paid subscriber base has been a key catalyst for the Services business, which is riding on the increasing popularity of the App Store and an expanding installed base of devices, albeit a worsening regulatory environment.
Apple has more than 1 billion paid subscribers across its Services portfolio, which offers Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle.
Mac Sales to Rise Y/Y
Apple’s Mac sales are expected to have jumped 20.8% year over year in the second quarter of calendar 2024, per IDC data. The iPhone maker is estimated to have shipped 5.7 million Macs, thereby grabbing a market share of 8.8% compared with 7.5% in the year-ago quarter.
Apple’s estimated shipment growth rate is the largest in IDC’s vendor list. While shipments of Acer Group, Lenovo and HP (HPQ - Free Report) are expected to have grown 13.7%, 3.7% and 1.8%, respectively, Dell Technologies (DELL - Free Report) is likely to have declined 2.4%.
IDC estimates 64.9 million sold units in the second quarter of 2024, up 3% year over year. In contrast, Gartner estimates shipment of 60.6 million units, up 1.9% year over year. In Gartner’s list also Apple gains the most in terms of shipments (up 13.1%) as well as market share (9% versus 8.1% in the year-ago quarter).
AAPL Shares Underperform Sector, S&P 500
Apple shares have gained 13.2%, underperforming the Zacks Computer & Technology sector’s return of 18.3% and the S&P 500’s 14.5%.
Year-to-Date Performance Chart
Image Source: Zacks Investment Research
Apple stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Earnings ratio, AAPL is trading at 30.06X, higher than the Zacks Computer & Technology sector’s 26.44X.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
AI Focus Aids AAPL’s Long-Term Prospects
AAPL has been on the investors' radar thanks to its AI push with the introduction of Apple Intelligence, an advanced personal intelligence system seamlessly integrated into iOS 18, iPadOS 18 and macOS Sequoia.
Apple’s AI push is expected to bring consumer-focused AI-enabled PCs into the market, thereby aiding PC shipments in the long haul.
AAPL has been playing catch-up in the AI space compared with Alphabet, Microsoft (MSFT - Free Report) and Amazon, its peers in the “magnificent seven” group. Following the launch of Apple Intelligence, its competitive position is expected to improve.
Leveraging the power of GenAI models, Apple Intelligence aims to enhance user experience across iPhone, iPad and Mac by combining robust language and image understanding with personal context. Siri, powered by Apple Intelligence, has become more natural, contextually aware and capable of handling complex tasks.
Siri’s functionality now extends to providing device support and answering detailed questions about using the iPhone, iPad and Mac.
Apple’s integration with ChatGPT improves user experience. Siri can utilize ChatGPT’s capabilities with user consent to provide more detailed and accurate information.
Conclusion
Apple’s near-term results are expected to bear the brunt of the weakness in China. However, it is benefiting from increasing customer engagement in the services segment. The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth.
Apple’s top line is likely to have benefited from strong growth in emerging markets and growing adoption of its devices among enterprises.
These factors make Apple stock attractive for investors. Currently, Apple carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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