Apple Q4 pre-earnings call: what you need to know

By Jonathan Trew

Oct 22, 2021

Technology giant Apple will release its fourth quarter earnings on 28 October. what can you expect?

AppleQ4pre-earningscall-whatyouneedtoknowHero2_b840ebeed69340386795fd5e45ba1efc_2000

Technology giant Apple will release its fourth quarter earnings on 28 October. The company has had a mixed few months, unveiling and releasing its new generation of iPhones but also warning of cuts to production as it grapples with supply issues.

The company’s third quarter earnings were well ahead of Wall Street’s expectations, with the company registering impressive year-on-year iPhone sales growth of nearly 50%. This drove total sales to increase by 36%. However, it seems likely that Apple’s fourth quarter will be less spectacular due to a shortage of iPhone components.

The figures

The tech giant’s share price has increased by 11.7% since the start of 2021 and by 406.8% over the last five years. The 12-month average price target for the shares stood at $166.40, according to Koyfin. Meanwhile, the majority of analysts gave the stock a Buy or Strong Buy rating.

As of 19 October, Apple’s financial metrics looked like this:

  • Share Price: $148.27

  • Market Cap: $2,394.2bn

  • Trailing 12-month (TTM) Revenue: $347.2bn

  • TTM Cash and Short Term Investments: $61.7bn

  • Total Assets: $329.8bn

  • Debt: $135.5bn

  • Total Equity: $64.3bn

  • TTM EPS: 5.11

  • TTM P/E Ratio: 28.4

Predictions

The iPhone maker’s fourth quarter revenue is projected to come in at $84.6bn, up by 3.8% on the previous quarter and by 30.8% compared to the same three-month period in 2020. Meanwhile, EPS is seen as coming in at 1.23, 5.3% lower than in the third quarter but up by 68.5% on the fourth quarter of last year.

While the company itself said it expected to see “very strong double-digit year-over-year revenue growth” during the fourth quarter. However, growth is expected to be slower than in the third quarter, with Apple noting in its last earnings call that progress could be held back by normalized growth in its services business and supply issues.

Indeed, Apple is currently struggling with a chip shortage. While the new series of Macbooks are being built with in-house chips, the company’s new smartphones are reliant on third party supply. The number of these components arriving with Apple has fallen short of expectations, leaving the company to announce a cut in the number of new smartphones it will produce before the end of the calendar year.

These new phones, which were released right at the end of the fourth quarter, are the iPhone 13 Pro and iPhone 13 Pro Max. The new models have been well received and will be in high demand, but supply constraints could limit their availability for customers in the short term.

Risks for investors

The aforementioned chip supply issue is one of the primary risks that Apple faces. However, there is more to consider. Apple has benefitted greatly from the smartphone boom, with its iPhone series becoming something of a status symbol.

Sales of the phones generally account for more than 40% of the company’s revenue. As such, any drop in production levels or demand for smartphones from consumers can have a serious impact on Apple’s results.

Another issue the company faces is a series of antitrust lawsuits. For example, Apple is currently involved in legal challenges brought by India and the European Union. These relate to the way in which the company has used its dominant position in the apps market to force developers to use its in-app purchase system. Indeed, the European Commission currently has four ongoing cases against Apple.

Additionally, some jurisdictions have passed legislation that limits Apple’s activities. These include South Korea, where the nation’s parliament has passed a bill which would ban the likes of Apple from forcing developers to use these in-app purchase systems. Though these pieces of legislation might seem manageable, they can chip away at Apple’s dominant position in the smartphone sector.

Is Apple a good investment?

If you’re looking for short-term gains then you might be best served elsewhere. The upcoming fourth quarter results are unlikely to be spectacular due to the chip shortage limiting Apple’s smartphone production.

Looking to the longer term, it is worth bearing in mind that Apple does pay a quarterly dividend. However, with dividend yield from the stock lying at less than half of the S&P500’s average, investors looking solely for dividend income should probably look elsewhere. With that being said, coupling this dividend income with Apple’s ceaseless growth makes the stock a smart buy for most investors.

The iPhone has reached a point where it is now undeniably iconic. It is worth remembering that the company is heavily reliant on sales of these smartphones to drive revenue growth. If it can hold on to its market share then Apple should remain a good investment into the long term.

Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.