After the market closes on May 1st, Eastern Time,$Apple (AAPL.US)$will announce its performance for the second quarter of fiscal year 2025 (the first calendar quarter of 2025). Institutions expect Apple to achieve revenue of $94.06 billion in Q2 2025, an increase of 3.64% year-on-year; and an expected EPS of $1.606, an increase of 4.99% year-on-year.
Year-to-date, Apple's stock price has decreased by about 16%, underperforming the S&P 500 Index (which has fallen 10% during the same period), mainly affected by concerns over gross margin and revenue due to tariff uncertainty. However, after the U.S. announced exemptions from tariffs on smart phones and PCs on April 11, Apple's stock price has shown signs of recovery.
Looking ahead to this performance, investors will still focus on Apple's revenue, iPhone revenue, service revenue, and other business growth. Unlike in the past when performance data was the sole focus, the market may now be more concerned about the company's profit forecasts for the upcoming months.
For investors, two major factors need to be weighed before the earnings report is released: first, the possibility of Apple continuing to exceed expectations, and second, the impact of potential risk events on valuation. Although current data suggests a high probability of exceeding profit expectations, external variables such as the Trump administration's tariff policies and fluctuations in global Consumer Electronics demand may still become "black swans."
Mobile Business
Goldman Sachs expects the revenue from the iPhone business line in Q2 to be approximately 47.8 billion USD, reflecting a year-on-year growth of 4%, which is higher than Wall Street's average expectation of 45.6 billion USD.
Goldman Sachs stated that the growth in iPhone revenue should be driven by a 10% year-on-year increase in sales, thanks to the launch of the more affordable iPhone 16e, which is not a flagship model; the concentration of demand driven by the enormous uncertainty of U.S. tariff policies; and the AI-driven replacement cycle.
On April 15, IDC released data showing that Apple iPhone shipments reached 57.9 million units in the first quarter of 2025, representing a 10% increase from 52.6 million units in the same period last year.
IDC indicated that Apple set a historical record for shipments in the first quarter of this year, partly due to advance stocking in the U.S. market in response to tariff changes; and on the other hand, large shipments to other regions were made because distributors worried that supply chain disruptions would lead to inventory shortages and price increases.
On the same day, Canalys research showed that in the first quarter of 2025, Samsung reclaimed the global top spot in the smartphone market with a 20% market share, followed closely by Apple, which increased its share from 16% in the first quarter of 2024 to 18% in the first quarter of 2025.
However, it is worth noting that Apple's performance in the Chinese market continues to decline. According to IDC's report, iPhone shipments in China fell 9% year-on-year, with market share dropping to 13.7%, marking Apple's seventh consecutive quarter of decline in the Chinese market. Analysts indicate that currently, relative product innovation and limited AI functionality are significant challenges facing Apple in the Chinese market.
In February this year, to revive sales, Apple launched a new low-end smart phone called iPhone 16e, priced at 599 USD. IDC reported that the sales of iPhone 16e in the first three days after its launch in China were 60% higher than that of the 2022 iPhone SE.
In addition, a new round of iPhone replacement cycle driven by Apple AI features has begun. The Goldman Sachs analysis team stated that the new replacement cycle driven by Apple Intelligence has quietly commenced, which is expected to drive Apple's performance into a significant upward growth trajectory since the second half of the year. However, under the backdrop of recession risks (Goldman Sachs predicts a 45% probability of economic recession in the USA within 12 months), the specific demand growth process of the new replacement cycle may also be below expectations.
Service Business
In terms of the service business, Apple's revenue share and gross margin are expected to continue to increase. Apple's services include Apple Care, Apple Card, Apple Pay, and the Apple Store series services; as Apple AI advances, there may be market expectations for some AI agent projects to begin charging fees.
Analysts believe that with the increase in Apple's ecosystem and number of devices, the advancement of AI services, and more consumers willing to enjoy related series services, all have boosted its revenue and profit margins. Looking ahead, this business is likely to continue becoming Apple's revenue and profit 'engine', and as the AI ecosystem further unfolds, Apple's AI to C business may become a cash cow.
Goldman Sachs expects Apple's Q2 service business revenue to increase year-on-year by 11% to $26.5 billion (compared to Wall Street consensus expectations of $26.7 billion), benefiting from a potential year-on-year growth of about 13% in App Store billing, and iCloud+, AppleCare+, Apple One subscriptions, and Apple Pay are expected to collectively grow year-on-year by 44%. Among them, Goldman Sachs estimates that Apple TV+ revenue in F2Q25 could reach as high as $1.5 billion, with subscription users potentially exceeding 60 million.
Other Business
In terms of the Mac business line, Goldman Sachs expects F2Q25 revenue to be about $7.7 billion (indicating a year-on-year growth of 3%), with the new M4 products expected to drive overall Mac series shipments to increase significantly by 15%.
In terms of the iPad business line, Goldman Sachs expects F2Q25 revenue to be about $6.1 billion (indicating a year-on-year growth of 9%), with ASP expected to exceed expectations with a year-on-year increase of 5% (premium strategy for the 13-inch iPad Air).
Tariff Impact
On April 2, Trump signed two executive orders regarding "reciprocal tariffs" in the White House, announcing that the USA would establish a 10% "minimum benchmark tariff" for trade partners and impose higher tariffs on certain trade partners, including China, India, and several major Apple production bases.
In this context, the market will closely monitor the potential tariff impacts on the supply chains of major USA technology giants and their overseas imports. Analysts believe that $Amazon (AMZN.US)$ Apple and other major technology giants may be the two most severely impacted by the tariff storm. For Apple, although there are short-term benefits due to consumers purchasing in advance to avoid price increases, the comprehensive implementation of tariffs will put dual pressure on Apple from rising supply chain costs and declining consumer purchasing power.
Tariffs have significantly increased the production costs of Apple's iPhone, forcing Apple to consider raising prices and accelerating adjustments to the global supply chain. Institutions such as TechInsights indicate that the exponential growth of tariffs is having a significant impact on the supply chain of the smart phone industry.
On April 11, the USA Customs and Border Protection Agency stated that certain electronic products, including smart phones, would be exempt from the "reciprocal tariffs". The mutual tariff exemptions on smart phones and PCs are beneficial for Apple in the short term, but uncertainties regarding trade policies and growth still exist, and Apple is responding to potential tariff risks through strategies such as diversifying production locations.
Goldman Sachs stated that the tariff exemptions for electronic products such as smart phones and PCs on April 11 will alleviate the tariff impacts in the short term, but the USA Department of Commerce's investigation into semiconductors under Section 232 could lead to new tariff policies targeting the technology sector, such as semiconductors (if semiconductor tariffs are introduced, smart phones and PCs will inevitably be affected as well).
What do big firms think?
The Goldman Sachs analyst team expects the EPS for F2Q25 to reach $1.64 (exceeding Wall Street's average expectation of $1.61), with revenue projected to reach $95.4 billion (surpassing the average expectation of $94 billion). Goldman Sachs stated that the strong growth expectations for Apple are primarily derived from:
A new replacement cycle driven by Apple Intelligence, along with the replenishment of inventory for new products like the iPhone 16e, MacBook Air/Mac Studio/iPad based on the M4 chip, to meet the continuously strong demand that exceeds expectations;
A significant front-loading of iPhone demand under tariff concerns has 'strengthened the replacement logic';
Amidst a trend of intensified competition among operators in the USA, there is a continued escalation of bundled promotions for the iPhone;
Relying on Apple's strong Apple ecosystem moat, the service business continues to perform strongly.
Goldman Sachs expects Apple's overall gross margin for the fiscal year 2025 to be 47.1% (compared to a consensus expectation also at 47.1%), which is at the midpoint of the performance guidance range (46.5%-47.5%). Additionally, Apple management may announce a new share buyback authorization, which is expected to significantly boost market bullish sentiment towards Apple's stock price; Apple typically announces a new buyback plan in the second fiscal quarter, such as the new authorization for up to $110 billion announced in the second fiscal quarter of the 2024 fiscal year last year).
Bank of America stated in a research report that concerns over tariffs have caused part of this year's iPhone replacement demand to be forced to be released early, and the institution has slightly raised its revenue forecasts for Apple's first natural quarter (ending in March) and the second quarter (ending in June). The latest expected PE given to Apple by Bank of America is at a relatively high level compared to Apple's historical valuation range of projected PE of 16-34x (median 27x) over the past 10 years.
The analysis team stated that given Apple is in a multi-year cycle of an entirely new iPhone upgrade, coupled with Apple’s substantial cash reserves for share buybacks and the opportunity to expand into new terminal markets, including the foldable iPhone, the diversity of its Consumer Electronics portfolio and service business continues to increase, making it reasonable to give Apple a valuation multiple close to historical highs.
However, Bank of America downgraded Apple's revenue and EPS expectations for the third and fourth natural quarters and the next two years to reflect the higher long-term operating costs brought about by a more complex supply chain, as well as the impact of delays in launching Siri digital assistant with more advanced AI capabilities.
Evercore ISI believes that Apple’s performance in the first quarter of 2025 is expected to exceed market expectations, but the focus will be on second-quarter guidance and how to account for tariff impacts. The agency indicated that in the short term, Apple’s stock price will be driven by geopolitical factors, but it is expected to respond to tariff impacts through various mitigation strategies.
Evercore ISI predicts that Apple’s revenue in the China market will remain flat or decline slightly (with a pessimistic forecast of a mid-to-high single-digit decline), iPhone revenue may remain flat or slightly decrease, while the service business will maintain low double-digit growth. It is noteworthy that the exchange rates will be significantly Bullish for Apple, serving as a partial offset.
How did the stock price perform on each Earnings Reports day?
Currently, Apple’s implied volatility is ±4.65%, indicating that the options market bets on a post-earnings single-day fluctuation of 4.65%; in comparison, Apple’s average stock price change post-earnings over the previous four quarters was ±2.2%, showing that the current options value of the stock is overestimated.
In the past 12 earnings announcement days, the probability of Apple’s stock price rising or falling was 50%, with an average price change of ±3.0% on earnings days. Regarding the direction of this post-earnings change, the options volatility skew data shows that the market slightly leans towards a Put.
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Editor/jayden
