What to Expect From Apple's Q1 2024 Earnings Report
$Apple(AAPL.US$ is approaching its Q1 fiscal 2024 earnings release on February 1 with the potential to report its first year-over-year quarterly revenue increase in a year, bolstered by strong iPhone sales and growing services revenue. Analysts predict that Apple will announce a revenue of $118.26 billion, along with a 12% year-over-year rise in earnings per share to $2.11. Expected revenue growth is modest, at less than 1%, marking the first uptick since Q4 of fiscal 2022.
Here are key expectations to watch:
iPhone Sales
The iPhone remains a critical source of revenue for Apple, outperforming sales of iPads, Apple Watches, and even Macs. Following the September launch of the iPhone 15 series, investors are keen to see how this new range influences Apple's iPhone sales in the first fiscal quarter.
Expectations are set for iPhone sales to hit $68.4 billion, which would represent the company's second-highest quarterly sales figure to date, reflecting a roughly 4% year-over-year increase fueled by the initial sales of the iPhone 15. However, there are concerns among some analysts that iPhone sales growth may not sustain through 2024, citing a Bloomberg survey that suggests consumers are increasingly opting to keep their current phones longer rather than upgrading to the newest models.
Vision Pro
Apple is poised to begin shipping the Vision Pro, its highly anticipated augmented reality (AR) headset that has been in development and discussion for several years. Priced at $3,499, this premium device is a significant gamble on a new technology platform that Apple hopes might eventually supplant smartphones as the central element of consumer digital life, and potentially replace the iPhone as the company's main revenue generator. However, there are early concerns about the headset's market potential, as major streaming services like $Netflix(NFLX.US$, $Spotify Technology(SPOT.US$, and YouTube have opted not to develop their apps for the device, possibly due to competition with Apple's own streaming offerings and the high costs associated with AR app development.
Despite these concerns, Apple's CEO, Mr. Cook, may have reasons not to be overly worried. Apple's stock price has remained relatively stable in January, and the company has managed to regain its position as the top heavyweight in the stock market with a $3 trillion valuation. Additionally, even if the Vision Pro launch does not meet expectations, its impact on Apple's near-term revenue is likely to be minor due to the headset's initially limited production.
Services Business
Apple, consistently among the world's top ten in market value since 2010, was once viewed as a hardware company with a relatively low valuation compared to its profits, trading with a price-to-earnings (P/E) ratio under 20. However, this perception shifted around 2019 as Apple's services sector, contributing $85 billion annually—about a fifth of its total sales—began to expand. This includes a significant advertising segment and the App Store, each bringing in around $24 billion, as well as growing entities like Apple Music, Apple TV, and a payments business. The realization that Apple was evolving into a lucrative software platform with high-profit margins (71% for services compared to 37% for devices) and recurring revenue led to an increase in its overall profitability and an elevated P/E ratio to around 30, surpassing the S&P 500 average and the valuations of tech giants like Alphabet, though remaining below those of $Microsoft(MSFT.US$ and $Amazon(AMZN.US$.
The AI Race
Concerns about Apple's AI development efforts may be unfounded. Erik Woodring from Morgan Stanley highlights the company's substantial investment in the field. Apple, alongside Columbia University researchers, released an open-source AI model called Ferret in October. A subsequent paper from Apple detailed how to run such models on less powerful devices like smartphones, as opposed to the usual data center environments. In January, a South Korean tech blogger suggested that an upcoming Apple operating system update, possibly in June, will bring AI improvements to Siri, the company's virtual assistant. There are also rumors that Apple may incorporate generative AI into its own search engine.
Risk and Uncertainty
Apple's primary risk stems from its dependence on consumer spending, which is highly competitive and subject to economic fluctuations. The company is vulnerable to the possibility of disruptive technologies or applications overtaking the iPhone, similar to how the iPhone once displaced BlackBerry. To mitigate this risk, Apple continually innovates by introducing new products, such as the Apple Watch and an augmented reality headset, and by offering a comprehensive ecosystem of software and services alongside its hardware.
Apple faces increased competition in China, which accounts for 17% of its total revenue, with its smartphone market share declining while domestic rival Huawei's has grown by about six percentage points. Despite U.S. restrictions on American technology sales to Huawei for national security reasons, Huawei launched the first 5G device with Chinese-made advanced chips, which patriotic Chinese consumers eagerly purchased along with other Huawei products.
Additionally, at the start of the year, the company confronted several legal issues, such as a prohibition on U.S. sales of some Apple Watch models featuring blood oxygen sensors pending an appeal in a patent infringement lawsuit. Additionally, the U.S. Justice Department may be advancing towards initiating a significant antitrust lawsuit against Apple, accusing the company of monopolistic practices related to the iPhone.
Source: Bloomberg, Yahoo Finance, MorningStar, The Economist, Investopedia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Red__Bull : I worked at a telecom giant for 20 years. And for twenty years I've heard "the sky is falling, the market for smartphones is saturated". But that never happens. What's the #1 thing that people have with them 24/7 beside their underwear? Smartphones. And people will find any excuse to drop a grand on a new iPhone. Hand-me-downs..."8 yo little Suzie should have a phone. I'll give her my 14 and buy the new 15"