• Management warns of sequential decline.
  • Q3 earnings and revenues expected to top estimates.
  • iPhone demand and sale on the spot.
  • Focus on the booming services division.

Apple Inc. (NASDAQ: AAPL) is scheduled to report its fiscal third-quarter results on July 27, 2021, having projected strong double-digit growth. However, the company did warn of a sequential decline due to a low iPhone supply-demand balance.

Additionally, the stock is up by about 11% heading into the Q3 report having underperformed the S&P 500, which is up by about 14% year to date.

The Apple Inc. stock price year to date

While the stock is up by about 58% over the past year, a strong print could strengthen investors’ sentiments, resulting in a further spike.

The company heads into the earnings season, unveiling a slate of new software updates as it continues to strengthen its service division. It also marked the first full year since the unveiling of iPad Pro, Apple TV 4k, and AirTag tracking accessory.

Q2 expectations

Wall Street expects the most valuable company to report $73 billion earnings or an EPS of $1.01 a share. In Q2, it delivered an EPS of $1.40 a share, more than double the same period levels a year ago. Additionally, it outpaced analysts’ projections of $0.98 a share.

Apple Inc.’ revenue, profit margin and operating margin quarterly growth and revenue trailing twelve months

Revenues, on the other hand, are expected at $72.93 billion. In Q1, revenues were up 54% to $89.6 billion, beating Wall Street’s prediction of $77.01 billion.

What to look out for?

When Apple reports, the focus will be on services, a segment emerging as a key driver of the bottom line as hardware sales growth continues to slow. Revenues on this front rose to record highs of $16.9 billion in the last quarter, mostly driven by the app store, cloud offerings, and music video sales. Advertising and payment sales were also up.

The company reporting Q3 earnings topping analysts’ evaluations could result from booming services sales led by advertising, free iCloud storage, and Apple TV +. Sales on the app store should also have a significant impact on the bottom line. An increase in paid subscriptions from the 660 million in Q2 should lead to a further increase in revenues.

The tech giant also launched new offerings and improvements in the June quarter as it strengthened the emerging division. Apple Podcast Subscriptions is one of the offerings that should have a significant impact on services revenue. Partnerships with the likes of Amazon and Google should also have an impact.

Additionally focus will also be on the hardware division, which has always been a key driver of returns over the years. In recent years, iPhone, Mac, and iPad, along with wearable sales, have appeared to have hit saturation levels.

Conversely, iPhone trades will be the center of attention, as has always been the case, given that they account for more than 50% of total revenues. In the last quarter, device sales were up 66% year over year to $47.9 billion.

If iPhone sales are to top analysts’ outlook in Q3, the same could be attributed to strong demand for 5G devices. However, the company was under immense pressure in the smartphone business owing to stiff competition from other brands.

In recent years, the company has affirmed its dominance in the wearables business backed by the Apple Watch. The device has grown in popularity, becoming a key fitness device for health-conscious people. Likewise, it launched a new OS for the watch, embedding greater access to Wallet and new workouts.

Bottom line

Expectations are high that Apple will report a strong Q3 report driven by strong iPhone demand as well as growth on the services front. While the focus will be on the booming services segment, the market will also pay close attention to iPhones demand.