{"id":43777,"date":"2023-08-03T00:24:05","date_gmt":"2023-08-03T04:24:05","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/apple-earnings-i-advise-caution-nasdaqaapl\/"},"modified":"2023-08-03T00:24:07","modified_gmt":"2023-08-03T04:24:07","slug":"apple-earnings-i-advise-caution-nasdaqaapl","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=43777","title":{"rendered":"Apple Earnings: I Advise Caution (NASDAQ:AAPL)"},"content":{"rendered":"
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Tim Cook<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Apple<\/strong> (NASDAQ:AAPL<\/span>) reports its earnings on August 3. The company has some big expectations to meet this time around. Just last week, Meta (META) and Alphabet<\/strong> (GOOG) reported earnings and <\/span>easily surpassed analyst estimates, delivering positive earnings growth. If Apple does not meet estimates as well, it may be perceived as underperforming its sector.<\/span><\/p>\n

If you look at Apple’s business mix, you’ll notice that it isn’t all that similar to Meta and Alphabet. Both of those companies are primarily advertising platforms. Apple does have a bit of app store advertising revenue coming in, but it’s not even big enough to get a separate line item on the income statement. Instead, it’s bundled in with app store sales in ‘services.’<\/p>\n

Most of Apple’s revenue comes from hardware sales, and there have been signs that these haven’t been doing too well at other companies.<\/span><\/p>\n

In the first quarter, $73 billion of Apple’s $94 billion in total sales came from hardware. That’s 77.6%. Apple’s ad revenue is part of services revenue, which as a whole is only 22.4% of total revenue. So, Google and Meta’s beats do not tell us a lot about how Apple performed in the quarter about to be reported.<\/p>\n

Indeed, analysts are not expecting Apple to report positive year over year growth like Meta and Google did. Instead, they are expecting earnings to decline. It’s possible that continuing buybacks could push EPS growth to 0% (as happened last quarter), but net income is very likely to fall.<\/p>\n

The reason for this is quite simple:<\/p>\n

Hardware shipments are down across the industry. Android phone sales fell 37% in Q2. Mac shipments fell 40.5% in Q1. Even game console sales declined! Now, Apple has a unique brand that sometimes lets it defy industry trends, but we wouldn’t expect it to defy this much bearishness in computer hardware. Q1 Mac sales were consistent with what was observed at other companies-in fact, Mac shipments fell more than PC shipments did! So, we’d expect Apple’s revenue to decline. Unless there’s a big surprise in services revenue, then it’s almost a foregone conclusion. Analysts expect a 1.6% dip in revenue, so even a 1% beat on the top line would be negative year-over-year growth.<\/p>\n

Of course, the stock market is a forward looking discounting mechanism, so if Apple comes out with rosy guidance, negative revenue growth may be forgiven. Theoretically, any result ahead of expectations justifies a higher price, providing that the price before the results came out was the correct one. Nevertheless, I do not expect Apple to perform as well post-earnings as Google and Meta did, for reasons that I will outline in the ensuing paragraphs.<\/p>\n

Hardware Sales Slump<\/h2>\n

As mentioned previously, computer\/smartphone hardware sales are falling at many tech companies. Apple was affected by this trend in Q1, Google in Q1 and Q2. It’s quite likely that today, Apple will also report declining hardware sales.<\/p>\n

There are some data points we can use to infer this:<\/p>\n