Apple of Markets eye must impress

Apple of markets eye must impress

Summary

The stock is the Apple of the market’s eye, in more ways than one. After a week when Wall Street and global shares appear to have stabilised following Odious October, the biggest capitalisation contributor to U.S. equity markets needs to come through with a solid quarter.

Wall Street fills in the blanks

Given that it’s such a pivotal quarter, it's unfortunate that, for this occasion, Apple skipped its custom of offering profit guidance. The group only said its gross margin, which investors also watch like hawks, would be between 38% and 38.5%. If so, it would pretty much hit the firm's long-term norm. In any case, with Apple's average retail prices creeping higher this year, Wall Street has confidently pencilled in a profit jump. Fourth-quarter earnings per share are seen at $2.78 compared with $2.70 in Q4 2017. Revenues should be $61.57bn, according to Refinitiv data. Revenue was $52.6bn in Q3 and Apple forecasts $61bn-$62bn in Q4.

Priced for surprises

To be sure, pricing is also the key avenue through which margin of error could creep in. Markets will gratefully seize on any positive earnings or profit surprise. But a negative one could spark fireworks in a weaker direction for Wall Street and beyond. The backdrop includes $1,000 iPhones having a beneficial impact on earnings and sales this year, raising expectations. With just 10 retail sales days in the quarter following a new handset range though, new iPhones may not boost Q4 sales much. The average price is expected to rise more than 20% to around $750. Volume hopes look elevated too, as they’re based on increasing signs that demand has been underpinned despite the year’s challenges. 47 million in handset sales is the figure investors are looking for, compared to 28.84 million in Q4 2017.

Apps and China

With Apple increasingly pointing to service revenues as a key source of long-term growth, investors have latterly needed to see an impressive clip at that business too. The 20% rise Wall Street expects would be a dip from Q3 but would match growth CEO Tim Cook has projected. Cook will also need to  address more clearly any impact from the trade conflict, after Apple products were excluded from tariffs imposed on China in September. On a related theme, China, at the heart of the dispute, will be yet another aspect of Apple’s report investors will scrutinise carefully. It is again the group’s fastest growing region after a two-year slump.