Don’t overlook Apple’s fourth-quarter services revenue

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Apple AAPL, a market giant, is on deck to unveil its quarterly results on October 27eafter market close.

The company’s services revenue will be a closely watched metric as the company has seen strong growth in the region.

Let’s take a deeper dive into what to expect.

Service revenue

Of course, Apple’s business revolves primarily around its flagship iPhone. However, the company’s services also made an interesting contribution to turnover.

Some of Apple’s services include Apple Music, Apple TV+, Apple Arcade, iCloud+, Apple News+, Apple Podcasts, and Apple Fitness+.

In its most recent quarter, the segment raked in $19.6 billion, below Zacks’ consensus estimate of just 0.7%, but reflecting a 12% year-on-year rise.

Additionally, Apple said it had more than 860 million paid subscribers across its services at the end of the quarter, up 35 million sequentially and 160 million year-on-year, driven by strong performance from Apple. TV+ and Apple Arcade.

Now, for the quarter ahead, Zacks’ consensus estimate for the segment sits at $19.7 billion, indicating a slight sequential increase and a 7.6% year-over-year increase.

Performance and valuation of shares

Year-to-date, Apple shares have held up relatively well, down 14% compared to the broad market’s roughly 20% decline.

Image source: Zacks Investment Research

The relative strength shows that market participants have respected Apple shares far more than most, which is undoubtedly a positive in a historically volatile 2022.

AAPL’s valuation multiples fell by a healthy margin; the company’s 22.9X forward earnings multiple is just a tick below its five-year median and away from 2021 highs of 35.6X.

The company has a value style score of a C.

Zacks Investment Research
Image source: Zacks Investment Research

Quarterly estimates

Analysts have been mostly optimistic about their earnings outlook, with three positive revisions to earnings estimates in recent months. Zacks Consensus’ EPS estimate of $1.26 suggests year-over-year earnings growth of a modest 1.6%.

Zacks Investment Research
Image source: Zacks Investment Research

Apple’s top-line also seems to be improving; Zacks Consensus’ sales estimate of $88.5 billion suggests revenue growth of 6% from quarterly sales of $83.4 billion a year ago.

Conclusion

The company’s services revenue will be a closely watched metric on the earnings call, as Apple has seen strong growth in the region.

Additionally, the growth of its service portfolio may help offset the company’s dependence on its flagship product, the iPhone.

Currently, the Zacks consensus estimate suggests Y/Y revenue growth in the region and a slight sequential increase.

In its most recent quarter, the company’s subscriber base for its services grew significantly, and it is looking to continue that trend.

The tech titan has an impressive track record of earnings, beating revenue and profit estimates in nine of its last ten quarters. Just in its last impression, Apple AAPL recorded a 5.3% pace in EPS and a 1.2% pace in revenue.

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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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