All eyes on Apple's third-quarter results
Analysts expect Apple to report solid results on Tuesday evening after the close of the markets, but any disappointment could lead to significant volatility on global stock markets.
APPLE
$260.90
22:00 31/03/20
Unlike Facebook and Netflix, which disappointed investors with their quarterly results last week, Apple is believed to follow the path of Alphabet and Amazon and give a better performance. Apple’s results could “draw a line in the sand” in the FAANGs that would see Facebook and Netflix fall away from the rest of the group, believes Jasper Lawler, analyst at London Capital Group.
In May, Apple provided guidance for Q3, where it said the revenue would be between $51.5bn and $53.5bn, gross margin between 38% and 38.5% and operating expenses between $7.7bn and $7.8bn.
The latest consensus expectations are for revenues to come in circa $52bn, up 15% year-on-year with EPS rising to $2.155.
Neil Wilson, chief market analyst at Markets.com, says: “As ever the discussion we have around each quarterly Apple earnings is to what extent it can shift away from relying too heavily on iPhone sales and we saw yet more impressive progress again in Q2 as services revenues rose sharply.
“Services revenue growth is essential to helping to drive up the stock’s multiples, which currently reflect the fact Apple remains predominantly a hardware manufacturer. Consensus suggests slowing in growth here to 27% for the quarter – a beat here is on the cards.”
Wilson also expects further strengthening in demand from the Chinese market: “Greater China sales went through a period of contraction in the last couple of years so the rebound is encouraging and investors will be looking for further evidence that this is a sustained improvement in the region. However recent dollar strength may have weighed on sales a little although we won’t know exactly what sort of impact currency headwinds (or tailwinds) will have had on the numbers.”
As for Q4, it is expected that there will be more upbeat commentary on margins as average selling prices firm and Services growth continues apace.
Kathleen Brooks, analyst at Capital Index, warned that if Apple does not deliver a decent set of earnings on Tuesday, markets could start to unravel and volatility start to rise.
“The reason for our focus on the tech market is two-fold. Firstly, investors have had a violent reaction to disappointing tech earnings this season. Take Facebook, its share price fell nearly 20% - bear market territory – on the back of its earnings miss last week. Another sell off could occur if Apple does not meet analyst expectations of $2.155 earnings per share later this week,” she said.
“Secondly, the market has become extremely reliant on the tech sector, as you can see in the chart below. The tech sector has been the key driver of the S&P 500 for most of this year. If Apple also disappoints expectations then we may see investors lose even more confidence in the sector, and a broader decline occur, at least in the short term,” she concluded.