What to look for from AAPL

Key points

  • Analysts estimate adjusted earnings per share of $ 1.37 versus $ 1.25 for the first quarter of fiscal 2020.
  • Revenues from services are expected to grow faster.
  • Revenues are expected to increase at the fastest pace in more than two years due to the global pandemic.

Apple Inc. (AAPL) has seemed impervious to bad news over the past year. The company’s stock has more than doubled from its low in early 2020, as demand for Apple products and services increased with more people working at home during the COVID-19 pandemic. The stock has even advanced in recent months despite a major antitrust lawsuit filed by the U.S. Department of Justice against Alphabet Inc. (GOOGL) that directly threatens Apple’s lucrative partnership with its fellow tech giant.

Investors will be watching closely whether Apple manages to maintain its performance when it reports earnings on January 27, 2021 for Q1 FY 2021. Analysts expect Apple to report increases in both adjusted earnings per share (EPS) and revenue, with EPS adjusted in growth at a slower pace than in the first quarter of fiscal 2020 and revenue at a slightly faster pace. Apple’s last fiscal year ended in September 2020.

Investors will also look at another key metric, Apple’s services revenue, which is a key part of Apple’s strategy to diversify its revenue mix. Analysts expect service revenues, which have large profit margins, to record the strongest growth in five quarters.

Apple’s strong services revenue performance contributed to the stock’s success relative to the broader market, although the stock fell sharply last March and moved largely sideways between early September and December. Over the past 12 months, however, Apple stock has delivered a total return of 76.6%, about 5 times the total return of 15.7% of the S&P 500 over the same period. All data is as of January 24, 2021.

Source: TradingView.

Apple’s revenue has increased year-over-year (YOY) for 14 of the past 16 quarters, with Q1 and Q2 FY 2019 the only periods with a YOY decline. However, revenue increases for many recent quarters have been anemic – revenue has increased by less than 2% year-on-year in 4 of the most recent 6 quarters. For Q1 FY 2021, analysts expect this to change. They see a robust 11.1% year-over-year increase, the highest improvement in quarterly revenue since the fourth quarter of fiscal 2018.

The company’s adjusted earnings have been similarly mixed over the past few quarters. After three quarters of year-on-year earnings of over 30% in FY 2018, Apple’s adjusted EPS growth has been uneven over the past 8 quarters. Three of these 8 quarters saw year-over-year declines, including the fourth quarter of 2020. For the first quarter of fiscal year 2021, analysts estimate adjusted earnings per share growth of 9.9%. This is a significant improvement on a sequential basis, but at a much slower pace than the 19.3% increase in the same quarter last year.

Apple key metrics
Q1 FY 2021 (estimate) Q1 FY 2020 Q1 FY 2019
Adjusted earnings per share ($)1.371.251.05
Revenue ($ B)102.091.884.3
Revenue from services ($ B)14.912.710.9

Source: Visible Alpha

As mentioned, a main focus for investors this quarter could be on Apple’s service revenues. The company has turned to services as sales of hardware devices, including the flagship iPhone, have slowed. Apple’s services include streaming services such as the Apple TV + movie and TV entertainment provider, the Apple Arcade video game seller, news services and digital content stores including the iTunes Store and App Store, as well as Apple Pay and AppleCare. It also includes a variety of other services that support Apple’s hardware devices. Revenue from Apple’s services business tends to be more stable and predictable than product revenue, and services also have significantly higher margins.

Analysts expect Apple’s service revenue to increase to $ 14.9 billion in the first quarter of fiscal 2021, the highest level in at least four years. The company’s service revenues have grown significantly in recent years, from a low quarterly growth rate of 12.6% to a high of 40.0% between fiscal years 2018 and 2020. Service sales now represent more than 22% of Apple’s total revenue in Q4 FY 2020. For Q1 FY 2021, analysts estimate revenue will increase by a healthy 17.3% YOY and increase by 15.6% throughout FY 2021.

Via: www.investopedia.com

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