Apple Earnings Q4 2015: Will The IPad Pro Stop The Segment Decline?

  • Apple earnings Q4 2015 are expected to be announced on October 27.
  • iPhone revenues/sales and Apple Watch-specific figures are the focus in the product category.
  • China’s growth will attract the most focus on the geographical spread of revenues.
  • These focus areas will have a significant impact on analysts' ratings and market projections.

Tech giant Apple (NASDAQ:AAPL) is expected to report its fiscal year 2015 Q4 earnings next week on Tuesday, October 27, after the market closes. Apple will report its earnings one month after the iPhone 6S sales reached a record, selling 13 million units of iPhone 6S and 6S Plus in the first weekend alone. Many were pessimistic about the new model’s sales and anticipated the iPhone 6S to fail. However, the phenomenal sales figures for the first weekend boosted investors' expectations for outstanding quarterly results and impressive FY 2016 guidance.

Three weeks before Apple started selling its new iPhone, the company introduced a number of new devices targeted at expanding the company’s portfolio and generate higher revenues. The Apple TV set-top box and iPad Pro were the focus of the September event on top of the new iPhone release. For the first time, a Microsoft (NASDAQ:MSFT) executive appeared in an Apple event, introducing the Microsoft Office for iPad Pro and demoing Microsoft's famous productivity apps targeted to meet the enterprise market requirements.

Apple tried to boost its $25B enterprise business by launching the iPad Pro and introducing an enterprise apps suite, like Microsoft Office that was mentioned above, Adobe Systems (NASDAQ:ADBE) professional editing apps, and of course IBM’s productivity apps, as part of the companies' partnerships. On the consumer side, Apple introduced a new generation Apple TV powered by a new operating system called tvOS, an App Store, a Siri version, and gaming support. Apple’s TV announcement started a smart TV set-top box war that was followed by Amazon (NASDAQ:AMZN) banning Apple TV or Alphabet Inc-C (NASDAQ:GOOG) Chromecast sales in its marketplace in support of the Fire TV solution.

Apple has also lately released its music service figures, unveiling that more than 40% of the 15M users of the service are paying customers. This figure somewhat reduced concerns investors had about Apple’s ability to monetize the music service and generate substantial revenues. Apple Music figures present a lower subscription number than Spotify’s 75M; however, Apple has a much higher percentage of paying customers than Spotify, which has only 27%.

After the recent announcement and the information released by Apple, the market still wonders how the smart watches business is developing. The most common explanation for the lack of information about the Apple Watch sales is a disappointing sales figure that is below Apple’s and the market’s expectations. Sooner or later, Apple will reveal specific Apple Watch unit sales or revenue, and investors are anxiously waiting for such a release.

In the previous earnings release, Apple reported a YoY increase in most of its segments: a 59% increase in iPhone sales, 9% in Mac sales, 12% in services, and 49% in other products. However, the iPad sales declined by 18%, and it would be interesting if the iPad Pro release manages to slow down the decline. The greater China area generated 112% more revenue than it did a year ago; the Americas were up by 15%, Europe by 19%, Japan by 9%, and the rest of Asia-Pacific by 26%. The amazing growth in China will be the focus of this earnings release in light of the economic crisis the country has experienced lately. The impact on the regional revenues in China could have a serious impact on Apple’s top line revenues.

These are the comparable figures to watch in this earnings:

Q4’15 Guidance Q4’15 Consensus Q4’14
Revenues $50B $51.07B $42.12B
Non-GAAP EPS N/A $1.88 $1.42

Source: The company’s IR, Yahoo Finance, WSJ

Conclusion

After Apple had introduced some new devices and services in the September event, investors were interested to see what their contribution to the company’s revenue was. Apple released some information so far to reduce the anticipation and expectation of the earnings release. However, one figure has not been released yet – the Apple Watch specific revenue/ unit sales. Investors are looking to see how that business is progressing, and another silent quarter might project negatively on the market’s opinion that Apple could generate substantial revenues from that segment. China will also be in the focus after a rough few weeks. Investors are interested to see how much the latest developments in the Chinese economy have impacted Apple. A significant impact might result in a lower 2016 outlook and would hurt stock price as well.

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