Reading Between the Lines of Apple’s 3Q23 Earnings Q&A With Analysts

Hello everyone.

In today’s update, we will focus on Apple’s 3Q23 earnings Q&A session with analysts. After recapping each question-and-answer exchange that occurred on the call between Apple and sell-side analysts, we will go over my thoughts / response to the exchange. Let’s go beyond what was talked about on the call.

NOTE: The following earnings call questions (“Q (Sell-Side Firm)”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, Seeking Alpha offers a written transcript here.

Reading Between the Lines of Apple’s 3Q23 Earnings Q&A With Analysts

Consumer Behavior

Q (Morgan Stanley): How is the consumer behaving today versus 90 days ago? Are there geographical differences?

Cook: Emerging markets was a strength. China saw acceleration. Europe saw a record for the June quarter. There are “some really good signs in most places in the world.” The smartphone market remains challenging in the U.S.

My response: The going theory for why the U.S. has been the outlier in terms of iPhone weakness is that economic anxiety (higher inflation and rates) combined with consumer behavior shifts (budget shift to services, leisure, eating out, and travel) have strained the appetite for consumer electronics. It also should be pointed out that the U.S. has one of, if not the highest, iPhone sales share in the world. There are fewer people in a position to switch to iPhone.

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Setting the Stage for Apple’s FY3Q23 Earnings

Apple reports FY3Q23 earnings (results from April to June) later this week. Today’s update includes Neil’s big picture thoughts heading into Apple’s earnings.

Happy Monday.

Apple reports earnings on Thursday. For those of you who may be new to Above Avalon membership, I wanted to quickly discuss the typical game plan for Apple earnings coverage.

Prior to Apple’s earnings release, we go over my expectations for what will be announced. These expectations cover both qualitative and quantitative items. Expectations are important given the role they play in adding context to a company’s results. My Apple earnings previews typically extend across two, possibly three, updates.

Once Apple reports earnings, we will then go over everything there is to say about the release, the earnings conference call, and even the 10-Q or 10-K. By the end of the process, we have a comprehensive overview of both Apple’s results for the prior three months and analysis of guidance for the current quarter.

Today, we will kick off my Apple earnings preview with an overview of the setup heading into Thursday’s release.

Setting the Stage for Apple’s FY3Q23 Earnings

Over the next few months, the setup is becoming more positive for Apple’s financial results. My expectation is that when Apple reports earnings on Thursday, we will begin to see and hear the early signs of this improvement. Apple’s guidance for FY4Q23 could still point to the business facing macro pressures, but that would then clear the deck in a way for an all-around better FY2024.

There are three factors behind this “improvement on the horizon” theme:

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Setting the Stage for Apple 1Q23 Earnings, About AAPL’s Move Higher, Looking Ahead at Apple’s 2Q23 (Daily Update)

Hello everyone. Welcome to a new week.

Apple reports FY1Q23 earnings (results from October to December) on Thursday. We kick off today’s update with Neil’s thoughts and expectations heading into Apple’s earnings. The discussion goes over implications found with AAPL’s recent outperformance to the market. The update concludes with some of Neil’s early thoughts regarding how Apple’s 2Q23 (January to March) is trending.

We will go over Neil’s granular Apple financial estimates tomorrow. His revised Apple earnings model will also be ready.

Let’s jump into today’s update.

Setting the Stage for Apple 1Q23 Earnings

Heading into Apple’s earnings release on Thursday, expectations for what Apple will announce remain muted. Even though Apple shares are up 10% so far in 2023, the move doesn’t necessarily correspond with consensus believing Apple’s results and guidance will surprise to the upside. More on that shortly.

Low or muted expectations for Apple’s results may come as somewhat of a surprise. The company’s 4Q22 results were decent. Here was a very quick summary:

“Despite facing major FX headwinds, Apple’s ecosystem remained on track in 4Q22. The company reported all-around solid 4Q22 results. The few areas of weakness (iPad and Services came in below my expectations) were offset by iPhone, Mac, and Apple Watch sales strength.”

While 1Q23 guidance was a tad weak with revenue growth coming in about 200 basis points lower versus my (adjusted) expectations – check out our 4Q22 earnings review here for the details as to how that number was derived - Tim Cook and CFO Luca Maestri sounded

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