Apple, Inc. Earnings: What to Watch

Since returning to growth over a year ago, Apple has had five quarters in a row of accelerating revenue growth. Can the tech giant keep up its impressive run?

Daniel Sparks
Daniel Sparks
Jul 30, 2018 at 5:41PM
Technology and Telecom

Apple (NASDAQ:AAPL) is scheduled to report its fiscal 2018 third-quarter results after market close on Tuesday. With shares up 27% over the past 12 months and 17% in the past three months, investors will be watching to see whether the tech giant can keep up its strong momentum.

When Apple's third-quarter results are released, investors will want to check on a range of metrics provided in the quarterly update. In particular, investors should look to Apple's overall revenue, services revenue, Other Products revenue, and guidance to gain insight into how the iPhone maker is doing.

Apple CEO Tim Cook shakes hands with fans at an Apple store the day of the iPhone 8 launch

Apple CEO Tim Cook. Image source: Apple.

1. Revenue growth

Apple's momentum was particularly evident in the company's second-quarter results. Revenue and earnings per share climbed 16% and 30%, respectively, during the period --  up from 13% and 16% growth in Q1. Not only was this Apple's strongest revenue growth rate in several years, but it marked the company's fifth consecutive quarter of accelerating revenue growth since returning to growth in the first quarter of fiscal 2017.

In recent quarters, Apple has shown its growth story is intact, and investors will look for this narrative to continue in Q3. Apple guided for third-quarter revenue to be between $51.5 billion and $53.5 billion, representing about 16% year-over-year revenue growth when using the midpoint of this range.

2. Services

Apple's services business, which includes revenue from the App Store, iTunes, AppleCare, Apple Pay, licensing, and other digital content and services, has served as a significant driver for much of the company's growth recently. Not only has Apple's services business grown to become the tech giant's second-largest segment, but its revenue is rising sharply. Trailing-12-month services revenue is up 26% year over year, and Apple's second-quarter services revenue increased 31% year over year.

Investors should look for similar growth from Apple's services business in Q3.

3. Other Products

Though Apple's services business is the company's second-largest segment, Apple's smallest segment -- Other Products -- is the one growing the fastest. Other Products revenue, which includes revenue from Apple Watch, Apple TV, AirPods, Beats products, HomePod, iPod touch, and other accessories, increased a nice 38% year over year in Q2, driven primarily by strong performance from Apple Watch and AirPods. On a trailing-12-month basis, Other products revenue is up 34% year over year.

Apple Watch revenue in Q2 increased by "strong double digits" on a year-over-year basis, Apple CEO Tim Cook said during Apple's second-quarter earnings call. What's more, when lumping together sales of its wearable products -- Apple Watch, AirPods, and Beats products -- revenue increased nearly 50% year over year during the period.

As with Apple's services business, investors will want to look for the tech giant's other products revenue growth to be close to the growth seen in recent quarters.

4. Revenue guidance

Another key metric to watch when Apple reports results will be management's revenue guidance for its fourth quarter of fiscal 2018. This metric will help provide a window into the company's fourth quarter. Since Apple's third-quarter report is scheduled at the end of July (one month into Q4), the company has significant visibility into the period, so management's guidance will be well-informed.

Investors should look for Apple to guide for more double-digit revenue growth. Analysts, on average, expect Apple's fourth-quarter revenue to be about $59.6 billion, representing 13% year-over-year growth.

Apple will report its third-quarter results after market close on July 31. Management will host a conference call to discuss the results at 2 p.m. PDT on the same day.