$AAPL FQ4 2016 Home Game Earnings Digest: Just Tell Me About Apple Inc.’s Upcoming Holiday Quarter
Sure thing! (This is excerpted from my “unapologetically” TL;DR earnings preview. Full link here. Important note + disclaimer here.)
“Apple’s Greatest Test” — the $75B-ish-Scale FQ1 2017
At least, that’s what Apple bulls are hoping for…maybe a little bit better than that.
Analysts polled by Yahoo! Finance, as of the date of this posting, expect Apple to have a holiday season ending on a very…flat note. Though there’s some variance in the estimates (lay off the eggnog for a bit longer, $86.99B analyst), the 32 pros polled are calling for a $74.65B December quarter, representing -1.6% growth from the year-ago quarter. It’s basically the same number as Q1 2015’s, iPhone 6-fueled $74.599B result.
For FY 2017, the consensus hasn’t moved much more than a billion and a half, meaning their FY 2017 estimated year-on-year growth rate has moved from around 4% to 4.6% (or $225.66B, still about 6.5% from Apple’s FY 2015 revenue peak).
But here’s the thing. December quarters set the tone. And since the powerhouse player in iPhone 7/Plus and the just-getting-started Watch Series 1 and 2 will feature prominently in that quarter (as aided by new Macs and Services revenue), along with presumptive iPad Pro 12.9 and mini refreshes, maybe an Apple TV update too…
…how exactly will a negative growth FQ1 2017 suddenly make way for decent-growth quarters for the rest of the fiscal year? It’s tough to see iPhone SE, iPad Pro 9.7 and Services carrying the weight on their own, if everything else is weighing Apple financials down.
And, no, I don’t think AirPods would help much, either.
So, we’ll conclude by flash-overviewing the five revenue categories, bearing in mind the “$1.2B shortfall” analyst consensus projects year-on-year.
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iPhone: Maybe analysts both think units will be up and ASP will be down? Yes, with FQ1 2016’s number being a staggering $690, lower ASP year-on-year is not a tough call. So, let’s pretend analysts see 5% unit growth (~78.5M units) and 7% ASP decline (~$642). No, I didn’t know the result beforehand — that’s essentially a year-on-year revenue decline of $1.2B! Adjust as needed depending on how effusive or dismissive you think analysts will be for “iPhone 6SE’s” prospects, heh.
iPad: Revenues were down 21% year-on-year in FQ1 2016, but with the FQ3 result and iPad Pro 9.7 clearly gaining some traction, it’s possible that iPad could have a revenue-growth holiday quarter in the works. Obviously, FQ4 will provide an important, if indirect, clue, as will what is or isn’t announced in the “hello again” event just two days after the earnings release. For fun, I’ll set the revenue growth dial at “exactly zero” — the direction it turns is heavily dependent upon what iPads Apple has on offer by next month.
Mac: It’s long past time for new Macs. But…is consumer demand still there given “the long, slow decline of the PC”? It partly depends upon the kind of case Apple can make for, primarily, the redesigned MacBook Pro retina 13/15s…or whatever replaces those two mainline models. And what of the popular, if aging, MacBook Air? iMac could help too, of course. Just so there’s a placeholder opinion, plus because reasons of conservatism to counter any raging fanboy bullishness, I’ll “dock” Apple half a billion dollars year-on-year for this one (-7% revenue growth), even as I think revenue growth is possible “in the right conditions”. It wouldn’t be entirely bad news if Mac sales convert to iPad sales instead, but a net loss in revenue for the replacement is a near-certainty.
Services: Fortune 100 company? Fortune 100 company. How big is that? $28B. $6.5-ish B or $7B for the holiday quarter? Let’s use “installed base theory” plus conservatism, and presume Services revenue will get a bit better from FQ1 to FQ4. So, let’s say $6.6B (about 9% growth), or around $550M in year-on-year growth, basically “cancelling out” any “lost revenue” from Mac.
Finally, Other Products: Apple Watch pretty much has to be a growth star, otherwise the smartwatch market may never really be what we thought it was. But what will that sales curve look like? Your guess is as good as anyone else’s. Following that, there’s the March of the W1-enabled Headphones/Earbuds, from the oh-so-easy-to-pair AirPods to Apple’s Beats business. And provided iPhone 7s and Plusses “are popular enough”, that will also positively influence that revenue category. Still, $4.35B is a high number. And Apple “would need” year-on-year growth of around 27% in Other Products for this overall revenue scenario to end up with…exactly the same revenue as the year-ago quarter.
Oh, and I forgot to tell everyone, so I’ll tell you now — it’s actually a 14-week holiday quarter versus the typical 13 weeks.
So analysts are actually either 5–7% more bearish than it initially appears, or they’re hedging their bets something fierce until Apple gives them the…let’s call it “courage” to bring that FQ1 number to perhaps more reasonable territory, especially in light of their whole-year-growth estimate. Hmmm.
How will Apple guide this most important of quarters? Tune in Tuesday to find out!
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Index:
FQ4 2016 AAPL Earnings Digest, Part 1: iPhone
FQ4 2016 AAPL Earnings Digest, Part 2: iPad
