Carl Court/Getty Images
Apple Inc. will report its most boring quarter of the year Tuesday, but there is still at least a little bit of drama.
Spring is typically the least exciting period for Apple AAPL, -1.66% since many people who would be interested in buying an iPhones have either gotten one already or are holding out for the new lineup, typically released in late September. The June quarter tends to be Apple’s smallest in terms of revenue and iPhone sales.
There are still a number of reasons to pay attention to what Apple executives say on Tuesday afternoon, after the company reports earnings for its fiscal third quarter. Investors mainly should watch for any commentary or indications about timing and pricing for the next iPhone release.
“FQ3...results are likely to mean little to investors barring a significant surprise to iPhone units, gross margins, or services trajectory,” Bernstein analyst Toni Sacconaghi wrote. “Investor focus has shifted to iPhone demand in FY19 with the next-generation iPhones.”
Apple’s quarterly outlook for the coming period will be a key indicator of Apple’s expectations for the next iPhone. There’s a tendency to parse that forecast for hints about what the company plans to do with its next batch of phones. A higher-than-expected outlook might give investors the sense that Apple plans to make its new phones available for purchase at some point in September, meaning they’d factor into fiscal fourth-quarter sales. In the current upgrade cycle, the iPhone X didn't come out until November, and it was in short supply early on.
When thinking about Apple’s forecast, however, Sacconaghi cautions against overexcitement.
“We note that historically, revenue guidance for FY Q4 has *not* been a helpful predictor of the strength of the forthcoming cycle, and FY Q4 gross margin guidance has only been helpful when Apple has guided meaningfully lower,” wrote Sacconaghi, who rates Apple’s stock at market perform with a $190 price target.
Beyond Apple’s outlook, general commentary could also shed light on management’s thinking going into the next iPhone cycle. Analysts often ask executives to talk about high iPhone prices, so watch for any nuggets there.
“The question is how far will they go to offer something that’s not as expensive, with a little less functionality,” DA Davidson analyst Tom Forte told MarketWatch last month.
What to expect
Earnings: Analysts surveyed by FactSet expect Apple to report earnings per share of $2.16, up from $1.67 a year earlier. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate is $2.23.
Apple has beaten earnings expectations in every quarter but one since March 2013.
Revenue: Apple’s management has forecast revenue of $51.5 billion to $53.5 billion for the June quarter, compared with $45.4 billion a year earlier. The FactSet consensus calls for $52.3 billion in quarterly revenue, while the Estimize consensus is for $52.9 billion.
Analysts surveyed by FactSet expect that Apple sold 42 million iPhones in the quarter and generated $29.2 billion in iPhone revenue.
Stock movement: Apple shares have fallen following five of the company’s last 10 earnings reports. The stock is up 27% over the past 12 months, while the Dow Jones Industrial Average DJIA, -0.30% , which counts Apple as a component, has gained 15%.
Of the 41 analysts tracked by FactSet who cover Apple’s stock, 25 have buy ratings and 16 have hold ratings. The average price target is $201.79, 4.4% above recent levels.
What else to watch for
Wall Street has its eye on Apple’s market value, which has been inching closer to $1 trillion. Calculating exactly how close Apple is to hitting the trillion-dollar mark is complicated, however, by the rapid pace at which Apple is buying back stock. The company announced in May that it was adding another $100 billion to its share-repurchase authorization, after spending $22.8 billion on buybacks in the March quarter alone.
Mark DeVaul, equity portfolio manager of the Hennessey Equity and Income fund HEIFX, +0.06% told MarketWatch that he’ll be watching for commentary around repurchases. Among the questions he has for Apple: “How much will you buy back, how fast, and will you ramp up?”
DeVaul will also be looking for any more information about the company’s plans to become net-cash neutral over time, as Apple has been vague on the timing of that objective.
Apple’s services segment has been a star in recent quarters, especially as iPhone unit-sales numbers have fallen short of expectations. It will be worth watching Apple’s services momentum again in the June-quarter numbers.
“Given iPhone results matter less late in a cycle and consensus expects flattish iPhone growth going forward as the market matures, we expect investors to focus increasingly on Services results as a sign of whether Apple’s installed-base monetization efforts can drive overall company growth despite declining services revenue,” Morgan Stanley’s Katy Huberty wrote.
Huberty projects $9.6 billion in services revenue for the spring quarter, above the FactSet consensus estimate of $9.2. She has an overweight rating on Apple’s stock and a $232 price target.
In conjunction with services, Apple might talk about its original-content aims, as well as any progress that’s been made there. The company is expected to eventually unveil a bundled services offering, which would combine music, video, news, and more. Perhaps management will be pressed on this during the earnings call.
Don’t miss: Here’s how much Apple could make from streaming
Investors should also pay attention to data on the average selling price of iPhones, which has at times helped Apple beat revenue and earnings estimates even after posting lower-than-anticipated iPhone unit sales. Analysts surveyed by FactSet expect the company’s iPhone ASPs to come in at $693 for the recently ended period. That would mark an increase from $606 a year earlier.
Another interesting element of Apple’s story is its China business, which has picked up lately. Arguably the biggest surprise in the March-quarter numbers was Apple’s 21% revenue growth in Greater China, its best year-over-year increase in 10 quarters.
BMO Capital Markets analyst Tim Long recently took a mixed view of Apple’s successes in the region.
“We believe Apple has been losing share in China, although other factors are helping revenues in the region, most likely the App Store,” wrote Long, who rates Apple’s stock at market perform with a $184 price target. “We expect greater China revenues to grow year over year but fall sequentially.”
Like executives from many other companies across various sectors, Apple’s management may provide a view on the current trade tensions between the U.S. and China, and any expected impact on business.
“While neither side wants to hurt Apple, it is possible that if the trade war escalates, Apple could be collateral damage,” Bernstein’s Sacconaghi wrote.
Watch for new data points about the less exciting elements of the Apple family, including iPads, AirPods and Apple Watches. On iPads, M Science analyst Matt Goodman told MarketWatch earlier this month that he and his firm “haven’t seen as much cannibalization as maybe one might expect” of Apple’s standard-size iPad Pro Apple in March rolled out a cheaper iPad that also supports the Apple Pencil stylus.
As for AirPods and watches, Apple has yet to break out exact figures for either product, though the company routinely claims the devices have hit new sales records without providing actual numbers. Since penetration of these devices is still relatively low, their sales aren’t necessary linked to the iPhone upgrade cycle. Thus, it will be worth watching for any somewhat substantial updates on their traction.
Get the top tech stories of the day delivered to your inbox. Subscribe to MarketWatch's free Tech Daily newsletter. Sign up here.