Can Continued Services Momentum Aid Apple (AAPL) Q4 Earnings?

Zacks Equity Research
·4-min read

Apple’s AAPL fourth-quarter fiscal 2020 results are expected to have benefited from continued momentum 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 22% of sales in third-quarter fiscal 2020.

Apple currently has more than 550 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic, thereby expanding subscriber base.

Additionally, Apple’s endeavor to broaden its ecosystem through partnerships with Amazon AMZN is a positive for the Services segment. Further, Apple Music’s availability on Amazon Echo devices and Fire TV is helping it expand its footprint and compete better with Spotify SPOT and YouTube Music.

The Zacks Consensus Estimate for Services currently stands at $14.03 billion, indicating 12.1% growth from the year-ago quarter’s reported figure.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM)
Apple Inc. Revenue (TTM)

Apple Inc. revenue-ttm | Apple Inc. Quote

Click here to know how Apple’s overall fourth-quarter results are likely to be.

Apple’s Mac Portfolio to Aid Growth

Apple expects Mac and iPad to post strong year-over-year growth in the to-be-reported quarter.

During the quarter, Apple announced a major update to its 27-inch iMac. The device now features faster Intel processors up to 10 cores, double memory capacity, next-generation AMD graphics, superfast SSDs across the line with four times the storage capacity, a new nano-texture glass option for an even more stunning Retina 5K display, a 1080p FaceTime HD camera, higher fidelity speakers, and studio-quality microphones.

Apple’s Mac sales are also expected to have been positively impacted by the remote-working and learning wave. Per Gartner data, cited by ZDNet, this Zacks Rank #3 (Hold) company saw its Mac shipment volumes expand 7.3% year over year in the third quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, Lenovo and HP HPQ were the top two vendors in the reported quarter, with shipment volumes increasing 8.3% and 0.7%, respectively.

The Zacks Consensus Estimate for Mac revenues stands at $7.89 billion, implying 12.9% growth from the figure reported in the year-ago quarter.

Apple Unveils iPad, iPad Air and Watch 6

Notably, the consensus mark for iPad revenues is pegged at $6.19 billion, suggesting 33% growth from the figure reported in the year-ago quarter. iPad demand is also expected to have remained high due to online learning and increased adoption among enterprises.

Meanwhile, Apple unveiled the new iPad and iPad Air at the Time Flies event on Sep 15. The eighth-generation iPad is powered by A12 Bionic chip and features a 10.2-inch Retina display, advanced cameras and great all-day battery life. The entry-level iPad, starting at $329 (for the Wi-Fi model in the United States), began selling from Sep 18.

Further, the new iPad Air that began selling from October is powered by A14 Bionic chip and features a larger 10.9-inch Liquid Retina display, camera and audio upgrades and a new integrated Touch ID sensor in the top button.

Additionally, the company introduced Apple Watch Series 6 and Apple Watch SE. The latest Apple Watch features a Blood Oxygen sensor that reflects the iPhone maker’s continuing effort to boost health capabilities of the device. Starting at $399 (GPS version), Apple Watch 6 was available beginning Sep 18.

Meanwhile, Apple Watch SE starts at $279 (GPS version) and will be available on the same date. The cheaper device features the same accelerometer, gyroscope, and always-on altimeter that can be found in Apple Watch Series 6.

Markedly, the consensus mark for wearables is currently pegged at $7.35 billion, indicating growth of 12.8% from the figure reported in the year-ago quarter.

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