The World Anxiously Anticipates Apple’s Earnings

All eyes are on Cupertino, 24 hours almost to the minute before Apple’s earnings will be reported. Apple faces a very different reception from the market on the eve of its previous earnings report, when its valuation had just topped the trillion-dollar mark and its newest class of iPhones had just hit the market.

And yet, investors left that quarter feeling the sting over some concerns: namely, that moving forward, it will be much tougher to know precisely how Apple is doing, since the company announced that it will no longer be breaking out specific figures for how many iPhones, Macs and iPads it sells each quarter.

In true Apple fashion, there was the spin as to why.

Apple Chief Financial Officer Luca Maestri said of the change in policy that the number of iPhones isn’t “representative of the underlying strength of our business,” and that “a unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line.”

It was not a line that many swallowed – The Wall Street Journal gleefully quoted Steve Jobs’ observation in 2009 that if Amazon was no longer breaking out Kindle sales numbers, it must mean they aren’t selling that many.

“Jobs’ point then was that if a company is selling a lot of stuff, they want to tell people about it. If they aren’t, then they don’t,” Karen Webster noted of Apple’s iPhone sales figure “rope-a-dope.”

The fact that this will be the first quarter with no iPhone break-out adds tension to what is already poised to be a bit of a fraught event.

In a letter to shareholders on Jan. 2, CEO Tim Cook sought to brace investors for what will be a big miss on its revenue targets set for the holiday quarter – potentially as much as $9 billion below the high end of its earlier guidance. In the letter, Cook called out a slowdown in Chinese sales as the major culprit behind the slowdown. However, recent reports indicate that sluggish iPhone sales, particularly around the XR model, have been a weight on Apple. Last week, reports began to circulate that the company will be slowing its hiring in the wake of lackluster iPhone sales.

Which means China – and Apple’s result – will be particularly closely watched when the report comes in tomorrow. A special area of interest will be the cause of the weakness.

“A miss this big suggests more than just economic weakness was to blame, with stiff competition from local rivals such as Huawei, Xiaomi, Oppo and Vivo likely playing a big role,” Dan Morgan, senior portfolio manager at Synovus Trust, wrote in an investor note on Monday.

Services, according to many analysts – home to things like Apple Music, Apple Pay and iCloud – will also be a closely watched area, particularly in light of the iPhone slowdown. Apple will notably be disclosing gross margins for its Services category for the first time during the quarterly report.

“Apple gave little detail in the pre-announcement, and therefore we’d expect the company to address the drivers of Services revenue during the earnings call,” noted Morgan Stanley’s Katy Huberty.

As for the numbers, the Street is forecasting earnings per share of $4.17, on revenue of $84.035 billion. In the same quarter a year ago, Apple reported earnings per share of $3.89 on $88.3 billion in revenue. The market consensus of iPhone shipments for the current quarter is 30-35 million units, while Wall Street analysts’ estimates stand at 34-37 million iPhone units.

So what to expect tomorrow? Probably not miraculous amounts of good news, and a lot of expectations-adjusting and a fair amount of drama, if major Apple releases of the past are a guide.

But the consensus among analysts seems to align with JPMC’s Huberty: Apple does not necessarily have to turn in a greater performance tomorrow to avoid freaking out the market, as the early January warning took some of the sting out.

But, she noted, they will almost certainly have to put in a “better than expected performance,” given all the recalibration that has already happened when it comes to tomorrow’s report.

We’ll let you know how it turns out when Apple reports their results tomorrow afternoon.