Can Continued Services Growth Aid Apple’s (AAPL) Q1 Earnings?

Apple’s AAPL first-quarter fiscal 2022 results, to be reported on Jan 27, are expected to have benefited from continued momentum in the Services business.

The segment, which includes revenues from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple News+ and Apple Card, accounted for 21.9% of sales in fourth-quarter fiscal 2021.

Apple currently has more than 745 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic, thereby expanding subscriber base.

Apple charges a commission of up to 30% on any in-app purchase made by users through its payment system. However, the high App Store fees and Apple’s market dominance have attracted attention from regulators and lawmakers globally.

Apple Inc. Revenue (TTM)

Apple Inc. revenue-ttm | Apple Inc. Quote


Apple, along with Alphabet GOOGL division Google, is facing various lawsuits and strict regulatory activities in Europe and the Asia Pacific due to their App Store practices.

Both Apple and Google continue to face strict regulatory pressure against their unfair trade practices with small local businesses. Both companies have exploited small app makers by charging a significant chunk of their sales and discarding the apps at any time.

Apart from this, Apple is accused of abusing its control over its mobile devices, harming competition and inflating prices via iPhone app sales.

Apple has now allowed some concessions to developers to ease some pressure off the latter regarding its App Store practices. As part of the App Store Small Business Program, businesses earning less than $1 million annually will continue to benefit from the reduced commission for at least the next three years.

The Zacks Consensus Estimate for Services revenues currently stands at $18.62 billion, indicating 18.1% growth from the year-ago quarter’s reported figure.

Click here to know how Apple’s overall first-quarter results are likely to be.

Apple’s Non-iPhone Portfolio to Boost Revenues

Apple’s non-iPhone portfolio, which comprises Mac, iPad and Wearables, is expected to have aided its top-line growth in the fiscal first quarter.

This Zacks Rank #3 (Hold) company’s Mac sales are expected to have been driven by the ongoing work-from-home and online-learning waves. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, per Gartner’s latest report, 88.4 million PCs were shipped during the fourth quarter of 2021 (October-December), down 5% from the year-ago period. Ongoing supply chain constraints and a decline in demand for Chromebooks dragged down PC shipments.

The U.S. PC market witnessed a 24.2% year-over-year decline in shipments, primarily due to a collapse in educational demand. Lenovo LNVGY and HP HPQ witnessed 35.8% and 34.8% declines, respectively, in the U.S. PC-shipments.

Overall, Lenovo remained the top vendor with a market share of 24.6%. However, its market share shrunk 190 basis points. HP holds the second spot with a market share of 21.1% in worldwide PC shipments.

However, Apple was the sole PC manufacturer that registered year-over-year growth in the U.S. market. During the October-December quarter, the company delivered approximately 2.69 million units, 6.7% higher than the year-ago period.

The Zacks Consensus Estimate for Mac revenues stands at $9.56 billion, implying 10.2% growth from the figure reported in the year-ago quarter.

Apple is also riding on its strong market share in the wearables space. The company’s endeavor to add healthcare features to its smartwatch has been a game changer for the device that faces significant competition from the likes of Google, Xiaomi, Samsung Electronics and Huawei Technologies.

The consensus mark for wearables revenues is currently pegged at $13.79 billion, indicating growth of 6.3% from the figure reported in the year-ago quarter.

However, iPad sales are expected to decline in the to-be-reported quarter. The Zacks Consensus Estimate stands at $8.11 billion, suggesting 3.8% decline from the figure reported in the year-ago quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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