3 Things to Watch for in Apple's Earnings Release

Expectations are high for Apple, but China is a question mark. Investors may want to learn more about how wearables and services fit into Apple's business.

Apple’s latest earnings are around the corner, and the stock has come a long way since this time last year.

Expectations are far higher than they were in January 2019, when Apple issued a rare revenue warning following an unusually weak holiday quarter. But after a year of strong execution, the release of several new products and services, and a brighter-seeming trade outlook, Apple  (AAPL) - Get Report is no longer the underdog of the FAANG set. For the December quarter, analysts are expecting earnings of $4.54 per share on sales of $88.4 billion.

So how did the holiday quarter shape up, and what can investors expect in the year ahead? We’ll learn more when Apple reports its December quarter earnings on Jan. 28 after the market close.

1. China Commentary

Apple is due to release a number of 5G-capable iPhones this year at a range of price points, which is widely expected to be a shot in the arm for smartphone sales starting later this year. The company is steadfastly mum on device announcements until they happen. But in the meantime, China performance remains a key driver for Apple’s iPhone sales. Having averted the threat of iPhone tariffs (at least for now), Apple investors are hopeful for a return to growth in China, if modest, in the December quarter. “We note that China revenue fell 16% in FY 19, but the pace of declines improved progressively over the last year. Revenue in China in recent quarters has been hurt by heightened trade tensions at the time and cautiousness from the China consumer,” noted CFRA Research’s Angelo Zino in a recent earnings preview. In addition to its regular sales reporting, Apple management could also offer commentary on what trends it’s seeing in the important market.

2. Wearables Growth

If there was one star segment for Apple in 2019, it may have been wearables. Driven by strong sales of AirPods and Apple Watch, growth in Apple’s wearables, accessories and home segment hovered around 50% throughout 2019. Signs point to another good quarter for this slice of Apple’s business -- Strategy Analytics estimated recently that Apple sold 60 million AirPods last year. Now, investors are trying to figure out what role wearables will play in Apple’s overall business: Writing in a recent note, Loup Ventures’ Gene Munster said that how best to interpret Apple’s wearables performance in 2020 remains an “open question.” Investors will be all ears both for sales results and commentary on this key emerging segment.

3. Services Results

Apple released a slew of new services last year, including Apple TV+, Apple Card, Apple Arcade and Apple News+. Each of these has been live for at least a few months now. In Apple's December quarter results, it's too early to expect any meaningful impact from initiatives like Apple TV+ -- after all, Apple is giving its streaming service away for free to buyers of Apple devices. But in the absence of that, management will likely offer some commentary on early feedback they've received from some of the new services, and what success they've seen so far. Over the next 12 month period, if any of Apple's new services emerges as a hit, that could serve as a key catalyst for the stock as Apple sows the seeds for future non-iPhone-centric success.