Apple's Earnings: Is Everyone too Bullish?
Apple’s (AAPL) earnings are due next week and with the stock 10% down from all-time highs, investors are looking forward to a great quarter from the Cupertino giant. With Amazon, Google and Microsoft delivering a great quarter, all eyes are now on Apple to come up with similar earnings report. Many firms are bullish on Apple’s stock going into earnings and expect the company to top last year’s sales record.
While analysts are bullish, many reports suggest that sales of Apple’s new iPhone 6S and 6S Plus aren’t living up to expectations in many parts of the world, and this may push the stock down irrespective of the numbers.
According to reports in India, the iPhone 6S hasn’t been as popular as its predecessor and similar stories are emerging out of Japan as well. According to Times of India, pre-bookings for the 6S fell short of expectations due to a higher price. Similarly, sales of iPhone 6S are expected to drop in Japan amid fears that the country’s economy may be slipping into recession.
Apple sold 13 million iPhone 6S units in the first week of launch as compared to 10 million last year. The increment was a result of the inclusion of China in the first wave of launch countries. However, I believe Apple will struggle to beat last year’s numbers.
The primary selling point of the iPhone 6 was its bigger screen, a move that many wanted Apple to make. Due to the larger screen, the hype surrounding the launch was huge, and that enabled the company to post record profits. Considering that Chinese consumers have a liking towards larger screen phones, the successful launch wasn’t surprising. Consequently, I was bullish on Apple and all Apple suppliers last year.
However, there was no such hype this time around as the iPhone 6S didn’t really have any new feature that people could look forward to. Even though Apple has a history of doing one better, I think the bar set by the iPhone 6 will be too high for the company to match, let alone beat. The company didn’t have a similar selling point this time around and given that iPhone accounts for roughly 60% of Apple’s revenue, any weakness will result in the share price moving lower.
Apple may manage to beat the analysts’ estimates on earnings and revenue thanks to the sales of the iPhone 6, however I believe the company’s guidance is likely to disappoint. Apple’s stock has run up about 10% in the last few days in the wake of its earnings and may fall 10%-15% if the company’s guidance doesn’t please investors.
I think Apple doesn’t have a strong selling point for the iPhone 6S this time around, and the bar set by the iPhone 6 will prove too high to beat. The company’s iPhone guidance may disappoint which can push the stock downwards. Thus, I think investors should sell Apple and Apple suppliers like Skyworks (SWKS), Avago (AVGO), and Qorvo (QRVO) going into earnings and accumulate on any significant post-earnings weakness.