$Apple (AAPL.US)$The financial report will be released after hours on August 1st (US Eastern Time), and institutions predict that its Q3 2024 revenue will reach $84.142 billion, a YoY increase of 2.87%; EPS is $1.33, a YoY increase of 5.88%.
Apple's cumulative increase this year is about 13%, slightly lagging behind the performance of the S&P 500 index during the same period. In early July, due to rumors of an increase in iPhone 16 series inventory targets, Apple's stock price repeatedly reached new highs, with a total market value exceeding $3.6 trillion, returning to the top of the US stock market. Currently, Apple has fallen about 5% from its high point.
Last quarter, Apple's performance exceeded expectations and it spent $110 billion, launching the company's largest ever share buyback plan, which caused the stock price to rise nearly 6% after the earnings call. Now, as technology stocks are on the brink of correction, can Apple pass the market's more "demanding" test?
Overall revenue may increase slightly, and the services and iPad businesses shine.
Since the outbreak of the pandemic, Apple no longer provides performance guidance, but Apple CEO Cook disclosed in the Q3 earnings call that the company's overall sales growth rate is in the "low single digits," and both service and iPad revenue will have double-digit growth.
According to Bloomberg's unanimous expectations, Apple's core iPhone business is expected to achieve revenue of $38.947 billion, a YoY decrease of 1.82% and a QoQ decrease of 15.26%, or two consecutive quarters of YoY and QoQ declines.
In other business areas, Mac sales are expected to exceed the overall PC market and achieve revenue of $6.976 billion, an increase of about 2% YoY and a decrease of 6% QoQ; Wearables, Home, and Accessories revenue is $7.792 billion, a decrease of about 6% YoY and a decrease of 1.5% QoQ.
Services and iPad businesses are outstanding, with the highest profit margins and accounting for 20% of total revenue. Service revenue, which is growing strongly, will continue to grow; iPad sales are expected to achieve double-digit growth, and service revenue is expected to be $23.956 billion, a YoY increase of 12.93% and a slight QoQ increase driven by App Store sales and subscription growth.
Apple's large user base allows it to further develop its subscription, App Store, payment, and other services. In the last quarter, the proportion of service business in total revenue has exceeded 26%, and industry insiders are generally optimistic about this business becoming Apple's new growth engine.
What other aspects of Apple's financial report are of concern?
Looking ahead to this financial report, the market will focus on the sales of iPhones in the Chinese market, the latest progress in artificial intelligence, and the latest information about the iPhone 16 model.
The iPhone currently faces fierce competition in the Chinese market. Canalys research data shows that as of the quarter ending in June, Apple's total shipments in China were 9.7 million, lower than the same period last year's 10.4 million, marking the first time in four years that it has fallen out of the top five in China; its market share has declined slightly by 2% YoY, accounting for only 14% of the market share. The top five rankings are Vivo, OPPO, Honor, Huawei, and Xiaomi.
In the last quarter, Apple's revenue in Greater China fell by 8.1% YoY to $16.37 billion, but it exceeded market expectations of a double-digit decline. This quarter, revenue in China may continue to decline, but the decline rate will continue to narrow. The market expects it to decrease by 3.2% YoY to $7.792 billion.
However, CFRA analysts claim that the third quarter may mark the end of Apple's sales decline and will usher in a recovery. The bank's analysts believe that Apple's "fate in the region is changing" due to increased shipments of iPhones in China driven by price discounts.
Secondly, investors will also focus on the update of Apple's generative artificial intelligence software Apple Intelligence, which may trigger a major upgrade cycle of devices.
Many analysts are very optimistic about the potential "replacement wave" brought by Apple AI. Baird analysts raised their target stock price for Apple from $200 to $240, and have been recommending Apple for many years due to its constantly expanding ecosystem, growing service contributions, strong cash flow, and innovative leadership. They believe that after years of slowing upgrade rates, Apple Intelligence can provide an upgrade catalyst, significantly improving revenue and EPS growth.
JPMorgan believes that Apple should assure investors that the upcoming AI replacement cycle will officially begin in FY2025 and accelerate further in FY2026. It is expected that investors will turn their attention to 2024 and believe that Apple has the ability to boost confidence in the upcoming financial report. The bank raised its target price from $245 to $265 and maintained an Overweight rating.
The latest news shows that Apple's AI function will be delayed until October, and there is no hope that iPhone 16 will be pre-installed. According to insiders, Apple plans to roll out Apple Intelligence to customers before October as part of a software update. Insiders say this means that AI features will be released several weeks after the scheduled launch of iOS 18 and iPadOS 18 in September, and iPhone 16 may lack new AI features.
How has Apple performed on previous financial report days?
According to Market Chameleon, in the backtest of the past 12 quarters of performance days, the probability of Apple rising on the day of performance release is higher, about 58%, with an average stock price change of ±3.6%, a maximum drop of -4.8%, and a maximum increase of +7.6%.
Currently, Apple's implied volatility is ±4.5%, indicating that the options market is betting on a single-day change of up to 4.5% after its performance; compared to the average stock price changes of ±3% in the previous four quarters, the stock price volatility after this performance will increase.
From the skewness of option volatility, the market sentiment towards Apple tends to be bearish.
Editor/new