Apple Inc. will release its earnings numbers on Tuesday October 27, and Wall street is building up to what might be a make or break moment for the firm’s shares. On Monday’s pre-market shares in the Cupertino firm lost more than 1 percent of their value. Traders are anxious heading into the big reveal, and there’s one major reason why.
Wall Street just isn’t sure what to look for from Apple in the year ahead. The best possible outcome is that iPhone sales grow, but, no matter what happens, sales of the firm’s smart phone simply can’t keep going up forever. Apple needs to find a way to grow its business outside of the iPhone, and Wall Street is confused about how that might happen.
Apple earnings may be saved
The most important number, or at least the one that’s going to attract the most attention, this time around is forward iPhone sales. Apple usually gives a forecast range for iPhone sales in the quarter ahead when it reveals its earnings numbers.
Daniel Ives, who follows Apple for FBR Capital, reckons that 75M is the key number here. If Apple says that it will sell that number of iPhones, or more, during the fourth quarter of the year Wall Street will be happy.
In his view, “the narrative for the Apple story rests on the shoulders of 6s with “good enough” December guidance starting to turn the tide in a positive direction, in our opinion.”
If traders are able to see sales of the iPhone 6S match those of the iPhone 6, they’ll be able to ignore other problems at Apple and buy into shares. That seems to be a view matched across Wall Street. What’s more interesting, however, is what Wall Street will look to if Apple comes in below that number.
What else is Wall Street is looking for?
iPhone sales can’t keep growing forever, and Apple will have to find new ways to grow its sales in order to keep appealing to traders. Apple has started a bunch of new businesses in the last two years in order to help improve sales of the smart phone while at the same time creating new cash streams.
This is all part of what Brian White, formerly of Cantor Fitzgerald, dubs “Planet Apple.” That’s the idea of Tim Cook’s firm as a diverse set of service contracts with millions of users around the world. Other Apple watchers, like Gene Munster of Piper Jaffray, reckon that the firm is truly a hardware concern and growth along those lines are what will really excite traders.
For him that means there’s three things that could drive shares in Apple higher: hype about the iPhone 7, a holiday sales boon from the firm’s new products (Apple TV, Apple Watch, iPad Pro), and increased iPhone 6S sales from the firm’s upgrade program. That means the firm’s guidance, as well as sales numbers for the Apple Watch, will be key insights into the firm’s growth for him.
Those in Mr. White’s line will be watching for any info Apple shares about growth in Apple Pay, Apple Music, and in the App Store.
No matter what the growth thesis, neither group is going to be happy if Apple’s iPhone forecast comes in low. Apple is almost completely reliant on the iPhone for sales and earnings. If the device loses its luster quickly, Wall Street is going to suffer quite the hang over on Wednesday morning.