Apple Q4 Earnings Preview: 5G iPhones, Services May Fuel Growth
Investing.com | Oct 29, 2020 18:34
- Reports Q4 2020 results on Thursday, Oct. 29, after the close
- Revenue expectation: $63.98B
- EPS expectation: $0.71
When Apple (NASDAQ:AAPL) reports its fiscal 2020 Q4 earnings later today, investors will be keen to get insight on the demand pattern for the company’s latest gadgets, including its 5G-enabled phones.
The California-based company unveiled four different iPhone models earlier this month in an effort to break out of a sluggish growth cycle for its flagship product. All new iPhone models run on a new wireless standard, known as 5G, that can transmit data as much as 10 times faster than the current 4G LTE technology.
The iPhone 12 offered a new appearance, with a flatter-edged look reminiscent of the iPhone 4. Prices for the new phones were roughly in line with last year’s, though the 12 Mini is the least expensive new version.
Apple is betting that new iPhone models will revive growth in its most profitable segment after unit sales peaked three years ago. The outlook for the iPhone business, however, became more uncertain during the pandemic, as millions of people lost their jobs, making it tough for them to buy more expensive newer models.
Many analysts believe Apple’s latest models, competitive pricing and the promise of faster speed could lure the company’s loyal user base to upgrade their handsets, beginning a new “supercycle” for this segment.
h2 Diversification Is Paying Off/h2Despite the pandemic-triggered headwinds, some analysts remain bullish on Apple’s earnings growth and advise investors to buy its stock even after a 60% jump this year. Analysts at JPMorgan believe the iPhone-maker stock is a good bet, given a combination of positive factors in play.
In a recent note, the bank cited strong demand for both legacy and new 5G iPhones, its industry-leading innovation in wearables, and a robust and resilient services portfolio as factors supporting earnings growth and its stock.
Even if Apple fails to generate enough momentum for its new models in the midst of a pandemic and a global recession, the company’s diversification strategy away from its hardware is working just fine and offers a good reason to remain excited.
Apple’s CEO Tim Cook is quite successfully using the company’s massive ecosystem to generate more revenue from services, like its App Store, streaming music and wearables that include the Apple Watch.
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While sales from the iPhone business stagnate, the company is witnessing robust growth from these new areas. In the last fiscal year, the wearables category grew 40%, while services posted a 16.4% surge in revenue.
And there is no reason to believe this pace of expansion will slow down anytime soon, especially when people are stuck in their homes and avoiding physical venues for entertainment. To take advantage of this opportunity, Apple last month unveiled an “Apple One” subscription bundle that combines several services—including Apple Music, Apple TV+ and iCloud storage—at a lower price than their individual packages.
h3 Bottom Line/h3Apple remains an attractive stock to buy even after its 60% rally this year. The company’s innovation machine, its increasing services segment and its wearable devices offer a solid reason to remain bullish on this stock. Even without another super sale cycle for iPhones in the current quarter, Apple is on the right track to monetize its massive install base. Any post-earnings weakness, in our view, should be taken as a buying opportunity.
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