My 1Q24 Apple Estimates, Expectations for 2Q24 Guidance, My Updated Apple Earnings Model

Apple reports FY1Q24 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for estimates related to Apple’s product categories. We then look at Neil’s expectations for what Apple will say about guidance (FY2Q24). We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

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My 4Q23 Apple Estimates, Early Thoughts on Apple’s 1Q24, My Current Apple Earnings Model

Apple reports FY4Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for estimates related to Apple’s product categories. We then look at Neil’s expectations for what Apple will say about guidance (FY1Q24). We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

Hello everyone. Welcome to November.

We will continue our Apple 4Q23 earnings preview with a look at my granular estimates. The update also includes a few thoughts on Apple’s FY1Q24 guidance and my updated earnings model.

In keeping with our usual practice, tomorrow’s update (Thursday) will be pushed back a day so that we have a special Friday edition of the update to review Apple’s earnings. Apple will release earnings Thursday at 4:30 pm ET.

My 4Q23 Apple Estimates

Here are my granular estimates for Apple’s 4Q23:

  • Revenue: $88.9B (consensus: $84.2B)

  • Overall gross margin: 44.9% (guidance: 44% to 45%)

  • Gross margin (HW): 36.7%

  • Gross margin (Services): 70.7%

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Alphabet 2Q23 Earnings, Ruth Porat to Oversee Alphabet’s Other Bets, My Updated Apple Earnings Model

We begin with Neil’s thoughts on Alphabet’s earnings. The discussion includes commentary on Alphabet/Google CFO Ruth Porat transitioning to a new role at the company. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

Hello everyone.

In keeping with our usual practice, tomorrow’s update (Thursday) will be pushed back a day so that we have a special Friday edition of the update to review Apple’s earnings. Apple will release earnings Thursday at 4:30 pm ET.

For today, we will focus on Alphabet’s earnings.

Alphabet 2Q23 Earnings

Alphabet reported a solid quarter as delays in some expenses and investments helped to boost CY2Q23 profitability.

Revenue was up 7% (up 9% excluding FX) with gross margins up 140 basis points year over year. Operating income was up 12%. Free cash flow was $22B.

While much of Alphabet’s earnings call was dedicated to AI, the more tangible takeaway was continued stabilization in the digital ads market. Like Meta, Google saw additional improvement in its core ads business. As macro issues subside, the purveyors over the most valuable pieces of digital real estate are positioned to see a return to ad revenue growth.

There is an asterisk found with the preceding statement.

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My Apple 2Q23 Estimates, Expectations for Apple's Capital Management Changes, My Revised Apple Earnings Model (Daily Update)

Apple reports FY2Q23 earnings on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion includes qualitative explanations for each of Apple’s product categories. We then look at Neil’s expectations for what Apple will announce regarding its cash dividend and share repurchase authorization. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

Hello everyone. Similar to previous quarters, with Apple releasing earnings tomorrow, Thursday’s update will be pushed out a day so that there is a special edition Friday version of the daily update.

Let’s jump into the second half of my earnings preview.

My Apple 2Q23 Estimates

Here are my granular estimates for Apple’s 2Q23:

  • Revenue: $95.7B (consensus: $93.0B)

  • Overall gross margin: 44.6% (guidance: 43.5% to 44.5%)

  • Gross margin (HW): 37.5%

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Alphabet 3Q22 Earnings, Three Google Yellow Flags, What Apple May Say About FY1Q23 (Daily Update)

We begin today’s update with Neil’s thoughts on Alphabet’s 3Q22 earnings. The discussion then turns to three yellow flags found in Google’s numbers. We conclude with a few of Neil’s closing remarks heading into Apple’s earnings release. The update includes access to Neil’s updated Apple earnings model.

Hello everyone.

As a reminder, there won’t be a daily update published tomorrow due to Apple earnings. Instead, the update will be pushed to Friday. In today's update, we will conclude our Apple earnings preview discussion.

CY3Q22 earnings season is in full swing. Tesla reported results a few days ago. Alphabet, Microsoft, and Spotify reported earnings yesterday. Meta reported results today.

The game plan is to go through these earnings reports with an eye out for trends and developments that will either have a direct impact on Apple or cause Apple competitors to change / modify strategies. We will kick things off with Alphabet earnings.

Alphabet 3Q22 Earnings

Heading into Alphabet’s earnings release, consensus was already aware of various headwinds impacting digital advertising trends. Macro issues were clearly hitting advertising revenue growth. In addition, temporary behavioral change caused by the pandemic was still producing an overhang on year-over-year revenue growth metrics. The unknown was found with how competition, namely TikTok and Apple, were impacting business trends.

In a nutshell, Alphabet’s 3Q22 numbers were alarming. Revenue growth has imploded.

The following exhibit contains the primary financial metrics for Alphabet’s 3Q22.

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Apple FY3Q22 Earnings Recap

Two weeks ago, Apple reported a solid FY3Q22 (April to June) given the tough year-over-year compare and considerable FX headwind. In terms of good news, supply chain issues, component shortages, and COVID-related headwinds appear to have bottomed for Apple. When it comes to bad news, some parts of Apple’s business are getting hit by inflation and slowing economic growth more than others.

Here are Apple’s reported 3Q22 results versus my expectations with brief commentary for each item.

  • Revenue: $83.0 (vs. my $85.9B estimate). Results missed my estimate due to a larger than expected headwind from FX, a larger than expected supply shortage with Mac, and macro issues impacting Wearables, Home, and Accessories.

  • EPS: $1.20 (vs. my $1.25).

  • iPhone revenue: $40.7B (vs. my $39.9B). That’s a good iPhone revenue number that doesn’t raise any yellow or red flags to me.

  • Services revenue: $19.6B (vs. my $20.1B). Results missed primarily on a larger than expected headwind from FX.

  • Wearables / Home / Accessories revenue: $8.1B (vs. my $9.4B). This was a weak number which Apple attributed to a “cocktail of headwinds.”

  • Mac revenue: $7.4B (vs. my $8.9B). Apple experienced major issues with supply as the Mac was the product category impacted the most by COVID lockdowns closing factories in China.

  • iPad revenue: $7.2B (vs. my $7.6B). Apple experienced ongoing issues with iPad supply.

  • Overall gross margin: 43.3% (vs. my 43.3%)

  • Services gross margin: 71.5% (vs. my 72.0%)

  • Products (HW) gross margin: 34.5% (vs. my 34.5%)

Breaking down the $2.9B revenue miss to my estimate, there were two primary drivers:

  • $1.5B revenue miss due to Mac supply not being as good as thought.

  • $1.3B revenue miss due to weaker Wearables, Home, and Accessories.

Even though Apple missed my (elevated) expectations, the company reported a 3Q22 beat to consensus as revenue came in about $2B stronger than sell-side analysts were expecting. The beat was due to stronger iPhone revenue as most analysts were expecting something more like $36B to $38B of iPhone revenue (vs. the $40.7B reported figure). EPS came in $0.04 above consensus as Apple’s margins came in slightly better than consensus thought as well.

An Above Avalon membership is required to continue reading this article. Members can read the full article here.

The full article includes the following sections:

  • Apple’s 3Q22: The Key Numbers

  • iPhone Sales Resiliency

  • Apple Ecosystem Growth Slows

  • Reading Between the Lines of Apple’s 3Q22 Earnings Q&A With Analysts

  • Notes From Apple’s 3Q22 10-Q

  • Tracking Apple’s Paid Subscriptions

  • Apple's Share Buyback Update

  • My Revised Apple Financial Estimates

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Apple 4Q19 Earnings Expectation Meters

There is increased attention around Apple’s 4Q19 results. Apple shares are up 19% since the company reported 3Q19 results back on July 30th. Since the start of the year, AAPL shares are up 58% while the S&P 500 is up 21%. For a trillion dollar market cap company, such outperformance is noteworthy.

Apple’s strong stock performance has led to questions regarding what management will have to announce on Wednesday to meet or exceed expectations. At the same time, Apple’s 4Q19 results have the potential of containing some noise as Apple works through its flagship iPhone and Apple Watch launch. For example, the iPhone was not in demand / supply equilibrium by quarters end.

The following table contains my overall estimates for Apple’s 4Q19. My expectation is for Apple to report strong 4Q19 results and 1Q20 revenue guidance.

A detailed discussion of these estimates, including the methodology and perspective behind the numbers, is found in my Apple 4Q19 earnings preview available here. Above Avalon membership is required to read my earnings preview.

Each quarter, I publish expectation meters ahead of Apple's earnings release. Expectation meters turn single-point financial estimates into more useful ranges that aid in judging Apple's business performance. In each expectation meter, the white shaded area reflects my official single-point estimate. The gray shaded area represents a result that is considered near my estimate. A result that falls within this gray area signifies that the product or variable being measured is pretty much performing as expected. A result that falls in the green shaded area denotes strong performance and the possibility of me needing to raise my expectations for that particular item going forward. Vice versa, a result falling in the red shaded area denotes the possibility of needing to reduce my expectations going forward.

Over the years, the expectation meters have evolved with Apple’s changing business and financial disclosures. Ahead of Apple’s 4Q19 earnings, I am publishing three expectation meters:

  1. Products vs. Services Revenue

  2. iPhone vs. non-iPhone Revenue

  3. 1Q20 Revenue Guidance

Products vs. Services

Apple breaks out revenue into two categories: products (i.e. hardware) and services. The iPhone likely weighed on Apple’s 4Q19 products revenue due to both declining unit sales and a lower average selling price (ASP). The end result is products revenue that will show little to no growth. Partially offsetting lackluster growth in products, Apple’s Services revenue is expected to grow in the vicinity of 15%. This dynamic will likely improve in FY2020 as both products and services will once again contribute to Apple revenue growth.

iPhone vs. Non-iPhone

Another way of thinking about Apple’s business is to allocate the company’s various products and services into two buckets: iPhone and non-iPhone. Last quarter, Apple’s non-iPhone business registered more revenue than the iPhone business for the first time since 2012. It is unlikely that this dynamic will repeat itself in 4Q19 as the iPhone business gains revenue momentum due to the flagship iPhone launch.

Guidance

Consensus expects Apple to report $86B of revenue in 1Q20. That seems on the light side. My estimate is for Apple to announce 1Q20 revenue guidance in the range of $88B to $91B. Apple has to report more than $88.3B of revenue in 1Q20 to reach a new all-time record for quarterly revenue.

Apple has two tailwinds for issuing strong 1Q20 revenue guidance:

  1. Apple is facing one of the easier year-over-year quarterly compares in years given the demand implosion in China seen in November and December 2018. This will make it that much easier for Apple to report revenue growth in 1Q20.

  2. The environment is conducive to both Apple Watch and AirPods selling well during the 2019 holiday shopping season. Apple not only faces a lack of genuine smartwatch or wireless headphone competition, but also has strong product lines with attractive entry-level pricing available.

On the flip side, one headwind worth monitoring is declining iPhone ASP. Apple cut pricing of its lowest-priced flagship iPhone by $50. In addition, Apple remains aggressive with pricing outside the U.S.

Despite Apple’s strong stock price outperformance so far this year, the company continues to have the lowest forward valuation multiples among the Wall Street giants. A good argument can be made that Apple’s strong stock price outperformance in 2019 hasn’t been driven by expectations of strong 4Q19 numbers or even solid 1Q20 guidance. Instead, the marketplace may be betting on improved visibility around Apple’s financials through FY2021. The environment is becoming more hospitable for iPhone revenue growth to return in FY2020. At the same time, Apple wearables continue to gain momentum. There is then growing smoke around the idea of Apple potentially having a busy first half of CY2020 from a new product perspective.

My working Apple earnings model as well as my granular 4Q19 estimates including unit sales, ASP, and margin expectations, are available here. Above Avalon membership is required to read my full 4,000-word earnings preview. Access to my model is available to members at no additional cost.

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