Apple Earnings: The Only Two Numbers That Matter
All that really matters this week is Apple’s (AAPL) earnings report.
I’m well aware that many will dismiss such a suggestion of supreme importance as nothing more than poppycock from an unabashed fanboy.
And the stats back me up.
Without Apple, tech sector earnings would actually contract 6% this quarter, according to FactSet. But with Apple, they’re expected to expand 0.2%.
It’s also worth noting that Apple was the largest contributor to S&P 500 earnings growth in the fourth quarter of 2014 and the second-largest contributor in the first quarter of 2015. And it accounts for 17% of the S&P 500’s gains this year.
Whether we own shares or not, we need to pay attention. Apple is going to influence the trajectory of the tech sector, the broader market and, in turn, our portfolios.
With that in mind, here are the two key numbers you need to focus on when Apple reports results after the Closing Bell today.
iPhone Units and ASPs
How many Apple Watch units sold? Is there any hope of iPad sales rebounding? How fast is Apple Pay gaining traction? Is Apple Music on track to topple Spotify?
Count on analysts obsessing over any insights that help answer these questions. Although they matter in the long run – particularly if Apple ever stands a chance of cresting the $1-trillion market cap threshold – they don’t today.
Instead, it’s all about the iPhone, the main driver of Apple’s success and, by extension, its share price.
In the first half of fiscal 2015, the iconic product accounted for 69% of Apple’s sales. That works out to about $3.45 of every $5 in total sales.
Now, consensus estimates call for Apple to sell 49.4 million iPhones, representing a 40% year-over-year growth rate.
However, KGI Securities’ Ming-Chi Kuo – arguably the most accurate Apple analyst on Wall Street – predicts the tech giant shipped close to 54.2 million iPhones. That would work out to an eye-popping 54% growth rate.
The key level for me is 50 million. Any number above it should be a strong enough beat to spark a rally. The higher the number, the stronger the rally.
The second number to keep an eye on is the average selling price (ASP) for an iPhone.
The consensus estimate calls for an iPhone ASP of $636, which represents a 2% increase over last year’s global average, according to Strategy Analytics.
However, I’m convinced it’s going to check in higher.
“Consumers seem to have become comfortable with the much larger screen,” says Josh Lowitz, Partner and Co-founder of Consumer Intelligence Research Partners (CIRP).
That means more consumers are buying higher-margin, bigger iPhones. And based on the latest CIRP survey, the increase appears significant enough to positively impact ASPs.
In the June quarter, 29% of new iPhone purchases were for an iPhone 6 Plus, up from 22% last quarter.
UBS analyst Steven Milunovich believes that could translate into the second-highest iPhone ASP ever at $660. (The high-water mark is $687, hit during Apple’s record-smashing fiscal 2014 fourth quarter.)
The higher the iPhone ASP, the more profit Apple makes. And because share prices ultimately follow earnings, a surprise to the upside on ASPs could propel Apple’s stock even higher.
Remember, if you’re an investor, you should be rooting for such an outcome, given Apple’s influence on both the tech sector and the S&P 500.
Thankfully, we won’t have to wait long to find out. Apple releases results after the bell, and management’s conference call begins at 5:00 p.m. Eastern time.
In case you’re interested, here’s a rundown of consensus analyst estimates for the other key quarterly numbers:
- Revenue: $49.3 billion
- Earnings Per Share: $1.80
- Gross Margin: 39.5%
- Revenue Guidance (Q4): $51.1 billion
Ahead of the tape,