Apple Earnings Preview: What to Look Out For

This week is sure to be one of the most important weeks of the year thus far for the stock market. With tons of major companies reporting their earnings, all eyes are on the FAANG stocks. Massive companies like Amazon, Microsoft, and Google make up a big portion of the major indices like the S&P 500 and the NASDAQ and will have a dramatic impact on the overall direction of the market after the report. However, this earnings season is especially important, because investors will finally receive some clarity about just how large of an impact the coronavirus is having on major corporations. One of the biggest companies that is reporting earnings this week is Apple (NASDAQ:AAPL).

Although Apple pulled its earnings guidance about a month ago, some investors are holding out hope for optimism coming from the company’s management team. It’s quite possible that they will even beat analyst expectations of a consensus EPS for the quarter of $2.08 due to the economic rebound in China. Will the trillion-dollar market capitalization company run back up to all-time highs or is there real cause for concern going forward? Let’s take a look at a few major things to look out for when Apple releases its quarterly earnings on April 30^th after market close.

Forward Guidance

Usually, when a company like Apple reports its quarterly earnings, investors are interested in diving deep into the previous quarter’s numbers and whether or not the company beat its Earnings Per Share and revenue estimates. However, this quarter, the focus will shift towards forward guidance rather than the actual Q1 numbers.

During part of Q1, Apple still had a large number of its stores open. The real question that the market wants to have answered is what their numbers will look like going forward as the coronavirus pandemic continues. Will Q2 be an absolute disaster for Apple, or will they rise to the occasion and continue their strong market-leading performance? We know that consumer spending will likely decline as unemployment in the United States reaches historic levels. That likely means less spending on iPhones and other Apple products through Q2 and beyond. It will be very interesting to hear management’s perspective on the current situation when they provide their forward-looking guidance.

China Sales Numbers

One of the most noteworthy things about earnings season right now is that we will finally get some insight into how the coronavirus is impacting the numbers for the world’s largest companies. A lot of people will be interested in Apple’s sales numbers for China specifically. That’s because those numbers might offer us perspective into what revenue figures will be like for Apple after the United States economy is “reopened”.

China makes up a large portion of Apple’s overall sales, so it makes sense that this figure will be a big driver of revenue. Keep in mind that the iPhone, Apple’s best-selling smartphone, represents about 61% of the company’s net sales.  If the sales numbers in China for the iPhone are down big even though their economy reopened, the stock price might follow suit. Make sure you keep an eye out for numbers that are specific to China when Apple reports this Thursday at market close.

Share Buybacks and Dividends

It’s safe to say that Apple has one of the best balance sheets out of all of the publicly traded companies on the market. Their cash pile is absolutely massive, as they were sitting on over $39 billion in Cash and Cash Equivalents as of December 28, 2019. Many market participants are waiting to see just what Apple plans to do with all of that cash during this period of economic uncertainty.

Historically, share buybacks have been commonplace for Apple, but it seems that a lot of the market is shifting away from that practice. Additionally, when a company as large as Apple has that much cash on hand, they typically pay it back out to shareholders in the form of dividend payments. That could mean that Apple will be increasing its dividend in the near future. Make sure that you take note of what Apple plans to do about share buybacks and dividend payouts going forward.

Moment of Truth

Apple’s Q1 earnings report is one of the biggest market events of the year and will set the tone for the market going forward. This is a company that is known for smashing their earnings estimates and continuously creating new and innovative products. It will be truly fascinating to see how Apple responds to adversity and what they foresee for their business during the remainder of the year. Even if they miss hard on Q1 earnings and provide pessimistic forward guidance, you still have to like the long-term prospects of such a well-run and innovative company.