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What to expect from Apple's Q3 2020 earnings report on July 30

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Apple will announce its latest financial results, covering the third fiscal quarter of 2020, later today. With no guidance from Apple on the quarter, all eyes will be on how well Apple has weathered coronavirus.

For the first time in over two decades, Apple did not issue any guidance for its forthcoming Q3 results. Traditionally, it issues such guidance for the next quarter during its call announcing the current ones, but this changed in 2020 and did so entirely because of COVID-19.

Apple's decision to not issue guidance does not mean, though, that analysts haven't tried to predict the figures. On average, analysts tracking Apple sales expect the company to report $51.47 billion in this call. That compares to $58.3 billion in the second fiscal quarter of 2020, although traditionally Apple's third fiscal quarter is the company's weakest time in the year.

For comparison in the third fiscal quarter of 2019, Apple reported revenues of $53.8 billion, slightly more than analysts had predicted. Over half of that revenue came from the iPhone, but Services were increasingly significant.

Following that 2019 quarter, Apple launched more such as Apple Arcade, and Apple TV+, leading to a 2019 Q2 of $11.5 billion. In Q2 2020, Services rose again to $13.3 billion.

Of the many analysts advising investors ahead of the earnings call — see below for details — Services are continually seen as a key part of Apple's fortunes. However, Bloomberg has suggested that the growth in this sector may be off to a slower start than anticipated.

While the impact of COVID-19 and Apple's efforts to reopen its Stores will the major factor affecting results overall, some of this is expected to be positive. What had been thought to be a temporary rise in MacBook Pro sales due to people beginning to work from home, has reportedly continued.

This quarter is also the first where there could be an indication of the success of the new iPhone SE. The phone does appear to have been a hit, to the extent that there were shortages. And even though its release fell outside the Q2 earnings period, it was repeatedly mentioned during that call.

The iPhone SE (right)
The iPhone SE

"I have seen a strong customer response to iPhone SE, which is our most affordable iPhone," said Tim Cook, while answering analysts' questions. "[It] appears that those customers are primarily coming from wanting a smaller form factor with the lates technology, or coming over for it from Android."

It's too soon, however, to see any visible impact from the announcement of Apple Silicon. Apple may well see a slight decline in Mac sales as potential buyers choose instead to wait for Apple Silicon-based models, but given that there is only about a month or so that could be impacted, it will likely be lost in the "noise" of other factors.

These earnings calls are legally required and Apple has certain obligations, but those do not include even speculating about future sales. Analysts are likely to ask anyway, but Apple will not give any details beyond current figures, and even those have omitted sales volumes since late 2018.

Morgan Stanley

Analyst Katy Huberty of investment bank Morgan Stanley is expecting that Apple will beat expectations and post Q3 revenues of $55.1 billion. She says that's based on the forthcoming "iPhone 12" 5G launch, continually growing Services, and also what she describes as outperforming product revenues overall.

"Investors are coming to realize that Apple may not be as dependent on significant iPhone cycles to sustain growth as they once thought," wrote Huberty, "and that the ecosystem Apple has created is differentiated and worthy of a platform valuation multiple."

Huberty expects that Services growth to be 16.7% year on year and result in revenue of $13.4 billion. She sees iPhone representing $24.1 billion, with iPad at $4.9 billion, and Wearables, Home and Accessories to bring $6.1 billion.

Loop Ventures

Loop Ventures analyst Gene Munster is also optimistic about Apple, but more about its long term future than its current results. He expects Apple to report $49.5 billion, below analysts average and significantly below Morgan Stanley's $55.1 billion.

According to Munster, the current earnings will be lower because of the various impacts of the coronavirus outbreak. However, he thinks the same issues that will have affected the company at present will also show investors just how well-positioned Apple is for the next many years.

Wearables are expected to continue to grow more profitable in the next years
Wearables are expected to continue to grow more profitable in the next years

Apple's managing of its cash reserves, in particular, means that the company will be able to "retain and acquire talent and technologies" in the aftermath of the COVID-19 situation.

In the shorter term, he also expects the 5G upgrade cycle to benefit the company. Then "software services [will continue] to penetrate new industries," while Apple TV+ original programming will increase Apple's "share of media consumption."

Cowen

Investment bank Cowen also believes that Apple is going to report revenues under expectations, but not by as much as Loop Ventures predicts. According to Cowen's Krish Sankar, Apple is set to demonstrate that it is resilient by reporting revenue of $50.18 billion.

That includes $21 billion from the iPhone, and $13.2 billion from services. Sankar thinks Apple's iPhone sales will be down 12% from the same quarter last year. However, he also predicts that taken as a whole, 2021's results will show a 20% increase over 2020's, specifically because of the "iPhone 12."

JP Morgan

Investment bank JP Morgan's Samik Chatterjee is another analyst who believes there are positive signs for Apple's longterm future, but he is also expecting the June results to be lower than others are predicting.

Chatterjee says Apple will report revenue of $49 billion. Of that, he's expecting $16.9 billion from iPhone sales, and $6.3 billion from the iPad. Then Wearables are estimated to account for $6.1 billion, and Services could be $12.9 billion.

"We do not rule out the likelihood of earnings exceeding consensus led by greater than expected offset from WFH benefits; although, we do not expect investors to be surprised as much following the outperformance to lowered expectations in F2Q," he wrote.

Wedbush

Daniel Ives from investment bank Wedbush is another analyst expecting Apple's results to come in above expectations. He predicts the June quarter revenues will be $52.1 billion

Ives's note for investors concentrates more on Apple's future, however, with a particular focus on the forthcoming 5G "iPhone 12." He says Wedbush's sources back up reports that the new phone won't include either a charger or wired EarPods, and consequently Ives expects sales of AirPods to benefit.

He estimates that of the existing iPhone user base, between 60 and 70 million are at the stage where they are likely to upgrade. Ives also thinks that at least one of the "iPhone 12" range will cost under $1,000. He says that "massive" demand for 5G plus this comparatively aggressive pricing will help Apple.

https://appleinsider.com/articles/20/07/28/apple-q3-financial-results-will-impress-iphone-12-super-cycle-coming-says-wedbush

AppleInsider will bring full coverage of the earnings call on Thursday, July 30, starting at 14:00 Pacific (17:00 ET). Between now and then, though, we'll be adding to this piece as details emerge, and guesses are made.

 

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