Will Slowing Services Growth Hurt Apple's (AAPL) Q4 Earnings?
Apple’s AAPL fourth-quarter fiscal 2022 results, to be reported on Oct 27, are expected to reflect the impacts of the sluggishness in the Services business.
The segment, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, accounted for 23.6% of sales in third-quarter fiscal 2022.
Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow.
Apple currently has more than 860 million paid subscribers across its Services portfolio. The App Store has been continuing to draw the attention of prominent developers from around the world, helping the company offer appealing apps to drive the App Store traffic, thereby expanding the subscriber base.
Apple expects Services revenues to be lower than that reported in the June-end quarter due to challenging macroeconomic conditions and unfavorable forex. Services revenues grew 12.1% year over year to $19.60 billion in the fiscal third quarter.
Apple Inc. Revenue (TTM)
Apple Inc. revenue-ttm | Apple Inc. Quote
Click here to know how Apple’s overall fiscal fourth-quarter results are likely to be.
Apple’s Non-iPhone Portfolio to Boost Revenues
Apple’s non-iPhone portfolio, which comprises Mac, iPad and Wearables, is expected to have aided its top-line growth in the fiscal fourth quarter.
This Zacks Rank #3 (Hold) company’s Mac is expected to have continued to win market share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per Gartner’s latest report, 68 million PCs were shipped in the third quarter (September-end) of 2022, down 19.5% from the year-ago period. Lenovo LNVGY, HP HPQ and Dell Technologies DELL witnessed 15.3%, 27.9% and 21.1% declines, respectively. Apple witnessed a 15.6% decline, much better than HP and Dell’s figures.
Overall, Lenovo remained the top vendor, with a market share of 25.2%. HP holds the second spot, with a market share of 18.7% in worldwide PC shipments. Dell’s market share was 17.7% in third-quarter 2022.
While Lenovo gained market share, both HP and Dell lost. Then again, Apple’s market share grew from 8.1% to 8.5%.
Apple made available the M2-supported MacBook Air in the fiscal fourth quarter. The 13-inch MacBook Pro was launched in the fiscal third quarter.
In the to-be-reported quarter, Apple expanded its self-service repair program for MacBook Air and MacBook Pro notebooks with the M1 family of chips.
The Zacks Consensus Estimate for Mac revenues for the fiscal fourth quarter is pegged at $9.01 billion, implying a 1.8% decline from the figure reported in the year-ago quarter.
Apple has also been riding on its strong market share in the wearables space. The company’s endeavor to add healthcare features to its smartwatch has been a game changer for the device, which faces significant competition from the likes of Google, Xiaomi, Samsung Electronics and Huawei Technologies.
The consensus estimate for Wearables, Home and Accessories revenues is pegged at $9.24 billion, indicating 5.2% growth from the figure reported in the year-ago quarter.
However, iPad sales are expected to decline in the to-be-reported quarter. The Zacks Consensus Estimate for the same is pegged at $7.62 billion, suggesting a 7.6% decline from the figure reported in the year-ago quarter.
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