- Analysts estimate earnings per share of $1.43 versus $1.40 in the second quarter of fiscal year 2021.
- Services revenue is expected to rise year on year, but at a slower rate.
- Total revenue is expected to grow, but at a much slower pace than in recent quarters.
Apple Inc. reported. (AAPL) reported the strongest earnings and revenue growth in recent history in fiscal 2021, primarily driven by rapid increases in product sales. But the company’s overall growth is slowing sharply, and Apple is now focusing on its services business once again for leadership. Analysts expect services revenue to double the company’s overall revenue pace in the current fiscal year. The growth in services revenue has a significant impact on Apple’s earnings because sales of advertising, the App Store, Apple TV + and other services generate significantly larger profit margins than the company’s products. No wonder Apple is now working on a subscription service for iPhones and other devices.
Investors will focus on whether Apple can revive last year’s strong growth when it reports its earnings on April 28, 2022 for the second quarter of fiscal year 2022. Apple’s fiscal year 2021 ended in late September, which is why it is now announcing its second fiscal quarter of 2022. Analysts are not optimistic. They expect earnings per share (EPS) and revenue to grow at the slowest pace in six quarters.
Investors will also focus on Apple’s service revenue, a key metric as noted above. The iPhone maker has long been famous for its hardware products, such as smartphones and computers. But it pushes aggressively toward higher margins, lower revenue on seasonal services, and thus reduces its reliance on hardware sales. Analysts expect Apple’s services revenue to rise at the slowest pace in six quarters. Despite this, services revenue is expected to more than triple the company’s overall revenue pace.
Apple shares have outperformed the broader market over the past year. The stock in the first nine to ten weeks of last year started below par. But it has mostly outperformed since early July 2021. The stock’s outperformance gap began to widen especially in mid-November 2021. Apple shares have delivered a total return of 17.1% over the past year, well above the S&P 500’s total return of 2.6%.
Apple’s earnings record
Apple announced first-quarter earnings for fiscal year 2022 that beat analysts’ expectations. Earnings per share rose 24.8% year-over-year, marking the slowest rise since earnings slumped in the fourth quarter of fiscal 2020. Revenue grew 11.2% year-over-year, its slowest pace since the fourth quarter of fiscal 2020. Apple said its revenue for the quarter hit an all-time high, driven by the recent launch of new products and services.
In the fourth quarter of fiscal year 2021, Apple beat its earnings forecast but missed revenue. EPS rose 68.2% year over year, a fast pace but still sharply lower than the +100% growth rates recorded in the previous two quarters. Revenue grew 28.8% compared to the same quarter last year, continuing the slowdown trend that began in the previous quarter. The company said it set new revenue records across all of its geographies in fiscal 2021. Revenues for services and Mac devices also reached an all-time high.
Analysts expect Apple’s financial performance to decline significantly in the second quarter of fiscal 2022. EPS is expected to grow 2.2% compared to the same quarter last year, sharply slower than the pace of the previous quarter. Revenue is expected to expand 5.3% year-over-year, its slowest pace since the fourth quarter of fiscal 2020. For the full-year 2022 fiscal year, analysts expect earnings per share to increase 9.5%, the slowest annual pace since earnings decline in the year. Fiscal 2019. Annual revenue is forecast at an 8.4% growth rate, the slowest pace since fiscal 2020.
|Apple key stats|
|Estimated for the second quarter of fiscal year 2022||Second quarter of 2021||The second quarter of 2020|
|Earnings per share (in dollars)||1.43||1.40||0.64|
|Revenue (billion dollars)||94.4||89.6||58.3|
|Services revenue (in billions of dollars)||19.8||16.9||13.3|
Source: Visible Alpha
As mentioned earlier, investors will focus on a key metric that is Apple’s services revenue. Its services include the company’s digital content stores and streaming services, such as the various platforms of the App Store, Apple Music, Apple Arcade, Apple News+, Apple TV+, and Apple Fitness+. Apple also generates services revenue from AppleCare, advertising services, cloud services, and other services, including Apple Card and Apple Pay. The company first began focusing on the services business in 2015, when growth in iPhone sales began to slow. Profit margins on sales of services are significantly larger than those on Apple devices. This means that every dollar of sales of added services disproportionately boosts Apple’s profits compared to hardware sales. One estimate pegs the Apple Store operating margin at 78%. The gross margin of her search advertising business is even greater than that of her app store business. However, services revenue still makes up a much smaller share of Apple’s total revenue.
In three of the past four years, revenue from services has exceeded revenue from Apple products. In fiscal 2018, the company generated $39.7 billion in services revenue, up 21.6% over the previous year. Growth slowed to 16.5% and 16.2% in the next two fiscal years. It then accelerated to 27.3% in fiscal 2021, the first year of the past four years as product revenue grew faster. But Apple’s service revenue is set to exceed product revenue again this year. In the first quarter of fiscal year 2022, services revenue increased 23.8% year over year, faster than product revenue growth of 9.2%. Analysts expect Apple services revenue to grow 17.0% year-over-year in the second quarter of fiscal year 2022. For the full year 2022 fiscal year, analysts currently expect Apple services revenue to grow 17.2%. By contrast, the company’s annual product revenue for fiscal year 2022 is expected to rise 5.7%.