Apple: Bullish Correction Before Earnings Release

Apple,Inc., an American multinational technology company specializes in the design, manufacture, and sale of smartphones (iPhone), personal computers (Mac), tablets (iPad), wearables and accessories (Apple Watch, Airpods, Apple Beats), TVs (Apple TV) and other varieties of related services (iCloud, digital content stores, streaming, licensing services), shall release its Q4 2023 earnings result on 2^nd November (Thursday), after market close. Could this conglomerate with the largest market capitalization at over $2.6 Trillion deliver satisfactory result amidst uncertainties?

Apple Inc: Revenue by Quarter. Source: MacRumors

In the previous quarter, Apple.Inc reported $81.8B in sales revenue, slightly down over -1% from the same period in prior year. By category, iPhone, Mac and iPad reported a decline in sales revenue from Q3 2022, to $39.7B (-2.5%; mainly hurt by a slowing economy), $6.8B (-7.3%) and $5.8B (-19.8%, which was said to be due to tough compare following introduction of new iPad Air during the quarter). These losses were partially offset by its Service category (up over 8% to $21.2B), driven by over 1 billion paid subscriptions. Subscriptions were also more than doubled over the past three years. The company also saw an increase of 2% revenue growth in wearables category, to $8.3B. Operating income slightly down to below 23.0B (was $23.08B (y/y)), but in general the company’s net income still manage to edge up 2% to $19.9B, thanks to its careful and controlled spending in the midst of uncertainties. In addition, operating cash flow remains solid with over $24B being returned to shareholders.

Apple: Net Sales by Segment. Source: CNBC

“We expect iPhone and services year-over-year performance to accelerate from the June quarter… Also, we expect the revenue for both Mac and iPad to decline by double digits due to difficult compares.” – Luca Maestri, Apple CFO

Global Smartphone Market Sell-Through by Key OEMs (%). Source: Gizmochina

Apple.Inc ranked second in the global smartphone sales race for Q3 2023, despite limited availability of iPhone 15. According to Counterpoint, the full impact of the iPhone 15 series is expected to realize in the coming quarter. Also, the 11.11 sales event in China, festive season in India and end-of-year promotions shall also put a halt in year-over-year declines.

Paid subscribers for digital services (App store, Apple Pay, Apple Card, Apple TV+, Apple Music and iCloud) reached over 1 billion, up 150 million over the past 12 months, and nearly a doubling from 3 years ago. In the previous quarter, there were 975 million paid subscriptions. The management expected to see continuous, healthy growth in the category for the coming quarters.

Besides Vision Pro developer’s kits and related applications, Apple has also been working on incorporating the AI technology to improve basic functions in its devices such as iPhones and watches, hoping to improve the overall product quality, increasing user satisfaction and maintaining competitiveness.The work on AI and software engineering is expected to bring an increase in R&D cost, to approximately $1 billion per annum, according to the management team.

Apple: Reported Sales versus Analyst Forecast. Source: CNN Business

Consensus estimate for sales stood at $90.3B, up over 10% from the previous quarter. In Q4 2022, it was 90.1B. If the reported figure in line with the forecast, the total sales revenue for FY 2023 shall hit $384.5B, slightly down nearly -10B from those in FY 2022.

Apple: Reported EPS versus Analyst Forecast. Source: CNN Business

On the other hand, EPS is expected to hit $1.36, up 10 cents from the previous quarter, and up 7 cents from the same period last year. Forecast for FY 2023 stood at $5.99, slightly below last year’s $6.11.

Technical Analysis:

#Apple share price hit ATH in July, at $198.21, before going into a correction to its bullish trend which starts from early January this year. It is last closed below FR 38.2% ($170). The 100-SMA which intersects with FR 50.0% ($161) serves as the nearest support to watch. A successful break below this level may indicate more selling pressure towards the stock, with the next target at $152 (FR 61.8%). Both MACD and RSI indicators suggest a declining bullish momentum.

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Larince Zhang

Market Analyst

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