There's no question that the course of Apple's (AAPL +0.17%) business is changing. The growing worldwide saturation of the smartphone market has forced the company -- which once relied heavily on the iPhone for its growth -- to alter course.
Apple has made a big push into services and wearables over the past couple of years, but 2019 was particularly busy for the iPhone maker. Apple dropped a press release on Wednesday that provides some intriguing details about its services and the holiday season, which could foreshadow better-than-expected results when the company reports its fiscal first quarter earnings after the market close on Tuesday, Jan. 28.
Image source: Apple.
A spotlight on the App Store
Apple introduced a host of new services offerings in 2019, including Apple Arcade, Apple TV+, Apple News+, and Apple Card, but the company is also counting on strong results from Apple Music, iCloud, and the App Store.
The iPhone maker called the App Store "the world's safest and most vibrant app marketplace," hosting more than half a billion visitors each week, and giving developers access to customers in 155 countries. Since the launch of the platform in 2008, the App Store has paid developers over $155 billion, with more than 25% of that total occurring within the past year alone. Apple noted that its momentum continued to close out the year, with App Store customers spending a record $1.42 billion during the period between Christmas Eve and New Year's Eve, up 16% compared to the prior-year period, and $386 million on New Year's Day 2020, up 20% -- and setting a new single-day record for the App Store in the process.
Wearables saw high demand
While Apple was busy highlighting its services business, others were focused on the company's booming wearables segment. Citi analyst Jim Suva said early last week there was evidence of strong sales of AirPods and the Apple Watch over the holiday season. "Some of their products are selling out, and you have to wait to get them," Suva said in an interview on CNBC. "It's not due to manufacturing issues," he added. "It's actually due to strong demand where the company can't keep up."
This strong demand could have an effect on the company's holiday sales results. "Apple's wearables, we see that as being the big surprise for Apple when they report earnings in the next month or so," the analyst said.
Another Wall Street analyst chimes in
Wedbush analyst Dan Ives believes that the tech giant closed out the year selling 67 million AirPods, "well above our original 56 million estimate," and services could turn in a strong performance, which could be another factor providing positive momentum.
Ives believes that the App Store figures, combined with the striking demand for AirPods during the holidays, will "result in a strong December quarter for Cook & Co ... heading into a massive 5G super cycle with currently 350 million iPhone customers in the window of an upgrade opportunity."
Image source: Apple.
What Apple expects
For its fiscal 2020 first quarter, Apple is expecting revenue of between $85.5 billion and $89.5 billion -- a fairly wide range -- which would represent year-over-year growth of between 1% and 6%. The trade war had dented sales of the iPhone early last year, but renewed demand for the device has driven better-than-expected results over the past two quarters, so that could be a wild card.
Wall Street is firmly encamped near the high end of Apple's forecast, with analysts' consensus estimates calling for revenue of $88.3 billion, an increase of about 4.7%, and earnings per share of $4.53, an increase of about 8%.
With the easing of the trade war, renewed interest in the iPhone, and signs of a stronger contribution from services and wearables, Apple might just be giving investors a belated Christmas gift.
