Apple reports earnings Thursday and all eyes are on iPhone 14 sales

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Performer Jon Batiste, left, and Tim Cook, chief executive officer of Apple Inc., center, at the Apple Fifth Avenue store in New York, US, on Friday, Sept. 16, 2022.
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Apple will report its fourth-quarter earnings for the quarter ended in September after the bell on Thursday.

The most important new information will be any details the tech giant offers on how the iPhone 14 series is selling.

Many investors will be watching to see if Apple’s newest iPhones, which went on sale late in the quarter, are on pace for a growth cycle or if global macroeconomic conditions have finally started to weigh on the high-end electronics market.

“We don’t believe fundamentals are immune to the macro backdrop, but we see the combination of a resilient iPhone product cycle in relation to revenues rather than volumes, as well as margins, to deliver results that demonstrate resiliency above the low bar of investor expectations at this time,” JPMorgan’s Samik Chatterjee wrote in a note on Monday.

Apple could also see a boost from better-than-expected sales of iPads and Macs, which have been slowed by parts shortages in recent quarters. Apple said in July that supply shortages could hit the company’s sales by $4 billion, but some analysts believe that the company will say that they were better able to manage the supply chain this quarter.

Apple hasn’t offered official guidance since 2020, initially citing uncertainty driven by the pandemic. But management has offered individual data points each quarter that allows analysts to back into the ability to forecast sales.

Here’s what Wall Street is expecting, according to FactSet estimates:

  • Revenue: $88.79 billion
  • EPS: $1.27

In July, Apple Chief Financial Officer Luca Maestri said that revenue growth in the September quarter would be larger than the third quarter’s 2% annual growth.

Maestri also warned investors that while the high-margin services business would continue to expand, its growth rate would slow from 12% during the June quarter, citing the strong dollar and economic factors.

However, “most investors are aligned that services revenue growth should accelerate” during the December quarter again, according to Morgan Stanley’s Erik Woodring.

Investors will be closely watching what Apple says about that quarter. Any forecast or guidance that suggests a lighter-than-expected holiday season could present the biggest risk to shares.

“We do not expect AAPL to provide revenue guidance for F1Q (Dec) due to the ongoing macro uncertainty, but we believe the company will suggest revenue growth will decelerate,” wrote Deutsche Bank’s Stanley Ho in a note over the weekend.

However, Apple sales appear to have remained strong, according to an analysis of iPhone wait times and third-party estimates of the premium smartphone market.

“Guidance commentary to likely feature easier supply, improving growth in Services and lower FX headwinds, but unlikely to get specific growth guidance given macro uncertainty,” Chatterjee wrote in a note.

One product category that could be hit by slowing demand is the company’s wearables division, which includes Apple Watch and wireless headphone sales.

“We believe Wearables are the most discretionary product in Apple’s portfolio and therefore most prone to the pullback we are seeing in consumer electronics spending,” Morgan Stanley’s Woodring said in a note.

Apple’s first fiscal quarter runs from October through the end of December and is the company’s biggest of the year, powered by increased holiday spending and a launch schedule that puts new products on the market in the fall.

Ultimately, analysts want to get a sense on Thursday of how Apple could weather an upcoming storm that could hurt discretionary spending and if shares will remain a safe haven as investors reassess other tech names.

Apple still has incredibly strong free cash flow and spends scores of billions per year on share buybacks and dividends. The stock is down 16% year to date, while the Nasdaq Composite is off over 30%.

“We still view AAPL as a defensive name given strong [free cash flow] and estimated $90-100B capital returns in CY23 even as premium smartphones and macro slow further,” Cowen analyst Krish Sankar wrote in a note.

— CNBC’s Michael Bloom contributed to this report.

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