Apple (AAPL) to Report Q3 Earnings: What's in the Offing?

Apple AAPL is set to report third-quarter fiscal 2022 results on Jul 28.

Apple expects COVID-induced supply chain disruptions and industry-wide silicon shortages to hurt the top line by $4-$8 billion, much higher than what it witnessed in second-quarter fiscal 2022. Unfavorable forex is also expected to hurt revenues by 300 basis points (bps). The absence of Russian revenues will hurt the top line by 150 bps.

The Zacks Consensus Estimate for revenues is currently pegged at $81.86 billion, indicating growth of 0.53% from the year-ago quarter’s reported figure.

The consensus mark for earnings is currently pegged at $1.13 per share, unchanged over the past 30 days and indicating 13.08% decline from the figure reported in the year-ago quarter.

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise

Apple Inc. price-eps-surprise | Apple Inc. Quote

Apple’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and were in line with the remaining one, the earnings surprise being 11.85%, on average.

Let’s see how things are shaping up for the upcoming announcement.

Strong iPhone 13 Demand to Drive Y/Y Sales Growth

Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 52% of net sales in the last reported quarter, wherein sales increased 5.5% year over year to $50.57 billion.

Apple is expected to have benefited from steady demand for the 5G-enabled iPhone 13, despite lockdown disruptions in China and silicon shortages.

Per the latest Canalys report on worldwide smartphone shipments, Apple grabbed the #2 spot with 17% of market share in second-quarter 2022.

The Zacks Consensus Estimate for iPhone sales currently stands at $48.68 billion, indicating 1.2% growth from the year-ago quarter’s reported figure.

Services Momentum to Aid Q3 Top-Line Growth

The Services segment is riding on the increasing popularity of the App Store. Apple currently has more than 825 million paid subscribers across its Services portfolio. App Store continues to grab the attention of prominent developers from around the world, helping the company to offer exciting new apps that drive traffic.

Services like Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle are expected to have contributed to overall growth.

Apple TV+ is gaining recognition, with CODA winning three Academy Awards and the continued popularity of Ted Lasso.

Apple TV+ is benefiting from quality content with its strong portfolio of shows. The company has been expanding its genre base to attract viewers and win market share against Netflix NFLX, which enjoys the leading position in the streaming industry, as well as established players like Disney DIS and Amazon AMZN.

Netflix continues to dominate the streaming market. In second-quarter 2022, the streaming giant lost 0.97 million paid subscribers globally, lower than its estimate of losing two million users. Netflix had added 1.54 million paid subscribers in the year-ago quarter.

Apple TV+ has been signing deals with the likes of Maya Rudolph's production company, Animal Pictures, Scott Free Productions, Appian Way, Sikelia Productions and Green Door Pictures, to name a few, to build its content portfolio.

During the to-be-reported quarter, Apple TV+ also won exclusive rights to broadcast Major League Soccer worldwide for 10 years, starting from 2023.

Apple TV+ has also reportedly submitted its bid for National Football League’s new Sunday Ticket partner. Disney and Amazon are the other contenders.

Apple expects Services’ growth rate to decline compared with the third-quarter fiscal 2022. Markedly, in the previous quarter, Services revenues grew 17.3% from the year-ago quarter to $19.82 billion and accounted for 20.4% of sales.

Wearables’ Growth to Remain Strong

This Zacks Rank #3 (Hold) company is dominating the wearables market, thanks to the strong adoption of the Apple Watch. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s Fitness+ subscription service, built on Apple Watch, is a game changer. Fitness+ tracks health- and workout-related data from Apple Watch that users can view on their iPhones, iPads or Apple TVs.

The addition of healthcare features has been a game-changer for Apple Watch. The Series 7 model offers a Blood Oxygen app, ECG app, high and low heart rate notifications, irregular heart rhythm notifications and fall detection.

Apple Watch’s adoption rate continues to grow rapidly. More than two-thirds of the customers who purchased it during the second-quarter fiscal 2022 were first-time customers.

The consensus mark for Wearables, Home and Accessories revenues is pegged at $8.28 billion for third-quarter fiscal 2022.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research