Computers and Technology

Apple Earnings: Expect Strong Q3 Services Revenue

The race to the mythical $1 trillion market valuation appears to be a two-horse race between Apple (AAPL) and (AMZN), with Alphabet(GOOGL) coming up on the outside.

Apple, at a current $938.7 billion, has a length’s lead to Amazon’s $886.4 billion, as the world’s most valuable company and just might extend its lead if third-quarter earnings are as good as anticipated by Wall Street on Tuesday after markets close.

Here’s a chart for what some are calling The Trillion Club:

Guggenheim Partners analyst Robert Cihra–who expects solid iPhone sales (43 million units, up 4% year-over-year) and strong Services performance ($9.3 billion, up 28% year-over-year)–raised his quarterly revenue estimate to $52.9 billion from $52.4 billion.

The Cupertino, Calif.-based company has offered revenue guidance of $51.5 billion to $53.5 billion for the quarter, and operating expenses between $7.7 billion and $7.8 billion.

Apple is expected to report earnings per share of $2.19, according to a consensus of 11 analysts surveyed by Zacks Investment Research. In the same quarter a year ago, the company reported EPS of $1.67.

The results aren’t likely to surprise Wall Street, as was the case with Facebook (FB) and the company’s earnings flop last week that cost it more than $100 billion in market value in one day. Apple’s third fiscal quarter is typically its most predictable as consumers and analysts await a new crop of iPhones that are routinely announced in September.

“This quarter takes a back seat to the ‘main event’ which is all about the FY19 underlying iPhone demand picture and ramping services business which remains a key incremental growth driver for Cook & Co. for the coming years,” Daniel Ives, head of technology research at GBH Insights, wrote in a note to clients on Monday. He maintains a Highly Attractive rating on Apple shares with a price target of $200. [Apple shares are down slightly, to $190.13, in morning trading Monday.]

“FQ3…results are likely to mean little to investors barring a significant surprise to iPhone units, gross margins, or services trajectory,” Bernstein analyst Toni Sacconaghi wrote in a note to clients last week. “Investor focus has shifted to iPhone demand in FY19 with the next-generation iPhones.”

Sacconaghi rates Apple stock at Market Perform with a $190 price target.

Apple’s share of smartphone users in the U.S. will remain the same in 2018, at 44.6%, according to eMarketer. Android will account for 53.3%.

Amazon reported a record $2.5 billion in second-quarter earnings, or $5.07 per share, on fewer sales ($52.9 billion) than analysts expected last week, sending its shares up 4%. Earlier in the week, Alphabet reported earnings per share of $11.75 on revenue of $32.7 billion, besting analysts’ estimates and pushing the company’s stock to new highs.

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