Apple Earnings Preview: Here’s What To Expect

Apple (AAPL) is scheduled to report second-quarter 2021 earnings on April 28 after the market closes. Over the past month, shares of the tech giant have jumped 12.5% and are currently trading at $134.86. A strong fiscal performance could send shares on an upward trajectory, so let’s take a closer look at what analysts on the Street are expecting.

Earnings Preview

In the prior quarter, Apple did not provide any guidance for revenues for the fiscal second quarter due to economic uncertainty. However, the company now expects revenues to accelerate in the second quarter and gross margin to be similar to 1Q, that is, approximately 40%.

Analysts are expecting AAPL to report revenues of $76.9 billion while the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $0.98 per share.

The company expects operating expenses to range between $10.7 billion and $10.9 billion in 2Q.

Prior Period Results

In the previous quarter, Apple surpassed the $100 billion revenue milestone for the first time, driven by strong sales in every product category, especially 5G iPhone sales. Apple posted revenue of $111.4 billion, a jump of 21.3% year-on-year, that came in ahead of Street estimates of $103.2 billion. The company reported 1Q earnings of $1.68 per share, up 34.4% year-over-year and topping analysts’ expectations of $1.42 per share. (See Apple stock analysis on TipRanks)

Factors To Look For

Apple expects that its gross margin in 2Q stands to benefit by around 60 to 70 basis points if the dollar continues to weaken.

Apple could also benefit from the rising demand for iPhones in China, particularly 5G enabled iPhones, as the country is quickly moving to 5G-enabled technology.

The company faced some supply constraints in the first quarter, especially with the iPhone Pro, which it expects to resolve in 2Q. Apple could also report higher sales of its Pro range of products in 2Q, including iPhone Pro, iPhone Pro Max, and iPad Pro, as customers have evinced strong interest in these products.

Apple anticipates a quarter-on-quarter deceleration when it comes to growth in sales in the Wearables, Home, and Accessories categories in 2Q. The company saw a higher level of activity in these categories in the prior quarter because of lockdowns around the world. The company has also forecasted a fall in channel inventory for AirPods, which is usual for the company after a holiday quarter.

Apple is optimistic about sales of its M1-powered iMacs and iPads in the second quarter as around 50% of sales of these products are to customers who are new to Apple.  The company also believes that there is plenty of scope for the iMac to gain market share in the personal computing market.

Additionally, Apple is looking at expanding its presence in the Indian market with retail stores expected to be opened in the future. The company currently retails its products online in the Indian market.

Recent Developments

Apple recently announced that it was accelerating its investments in the US and intends to spend $430 billion over the next five years and add 20,000 new jobs across the US in the process. The company is also planning to open an engineering campus in North Carolina.

Furthermore, the company is also looking at guarding the privacy of its users as changes to the Identifier For Advertisers (IDFA) came into force this week with the launch of Apple’s iOS 14.5. This development will result in app developers being unable to track a user’s IDFA if a user opts out of sharing their privacy details while downloading an app from AAPL’s app store.  

Earlier this month, the company also unveiled a range of products at its “Spring Loaded” virtual event. This included new iPad Pros that will come with an M1 chip designed by Apple and has an 8-core Central Processing Unit (CPU) design.

Additionally, AAPL also introduced the AirTag, an elegant accessory that once attached to an item helps keep track of and find things that generally get misplaced, like keys and handbags.

Analyst Recommendations

On April 26, Deutsche Bank analyst Sidney Ho reiterated a Buy rating on the stock. Ho said in a research note to investors that AAPL’s smartphones, particularly 5G units, are trending well for the year with minimal excess inventory in the supply chain.

Ho also expects continued high demand for the iPhone as a result of a delay in the launch last year and believes AAPL will continue to benefit as it controls a larger share of the market.

Overall, the stock has a Moderate Buy consensus rating based on 21 Buys, 4 Holds, and 2 Sells. The average analyst price target of $151.35 implies 12.3% upside potential from current levels.

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