* Reports Q2 2019 results on Tuesday, April 30, after the close
* Revenue expectation: $ 57.44B
* Wbe expected: $ 2.37
Investors are feeling better about Apple Inc. in recent months. (NASDAQ :). The share price has risen 42% since the lowest point in January 18 months ago, ending yesterday's 0.2% at $ 204.61.
But that newly rediscovered love will undergo its first major test later today when the maker of iPhones releases his version. Analysts expect an average of $ 2.37 earnings per share, a decrease of 13% over the same period a year ago. That will be the worst year-on-year decline since 2016. Turnover is likely to fall more than 6% to $ 57.44 billion.
Apple's major challenge in recent quarters has been to show that the company can maintain its momentum of growth by delaying the sale of its largest revenue generator, the iPhone. That threat became even more apparent when the company first lowered its sales forecast in January for more than 15 years in January, referring to a sharp slowdown in China. Later that month, Apple recorded its first fall in revenue and profit in the last quarter in more than a decade.
In combination with this poor sales forecast for China, Apple faces another challenge in its developed markets: loyal iPhone customers stay with their older models and take more time to buy the more expensive, newer phones
Services are Apple's new ammunition
Undoubtedly, this grim look provides enough reasons for many analysts to lower their predictions and ask questions about the company's vision for the future. But we believe these challenges are short-lived and CEO Tim Cook has enough ammunition to combat this downturn. We get our optimism from the biggest push so far of the company to generate income with its 1.4 billion active installed base by offering a package of new services.
In March, Apple announced in March a new video contribution service that will offer its own original content. It is also planning to launch a mobile game subscription service that provides access to more than 100 exclusive games, as well as an Apple credit card in collaboration with Goldman Sachs Group (NYSE :).
The most important part of this strategic shift is Apple's search for the video streaming service, which will be launched in more than 100 countries this fall. With regard to consumer credit, Apple Card has no common costs such as annual, foreign transactions and late fees, further enhancing the appeal of the Apple Pay feature
It is hard to predict how long it will take for Cook to make money with these new attractions, but it is not difficult to see a future in which Apple becomes a service-related company while its mature iPhone business remains cash offer.
Even before the March announcement, the strong performance of the other Apple companies reduced dependence on Apple & # 39; s iPhone. The company's service section, including Apple Music, rental films and app downloads, has achieved 33% growth last year with revenue of $ 40 billion – accounting for around 15% of total revenue of $ 265.6 billion. That contribution to Apple's total revenue, according to a Morgan Stanley estimate, will continue to grow and generate around 60% of Apple & # 39; s revenue in the next five years.
The growing return of money from Apple to investors is another compelling reason to remain loyal to the shares. Apple returned more than $ 12 billion to investors in December in the form of dividends and share buybacks. That amount is likely to grow, especially when Apple's cash bill swells. The company ended last year with a net cash balance of $ 130 billion.
Bottom Line
We do not think that the rough period for Apple's iPhone sales is over. The Q2 gain is likely to show that trend. But this headwind is short-lived and we believe that any report on weakness after profit should be seen as an opportunity to buy.
We don't think Apple's shares are expensive even after this year's rally. Apple is trading on approximately 16 times expected earnings expectations, compared to an average of about 20 times for the Information Technology Index. For long-term investors who want a decent return through dividends and capital growth, we still find Apple an attractive precaution against risks and rewards.
