Apple's (AAPL) stock is up about 30% year-to-date to $149.50 as of Friday's market close, just days before it reports third quarter earnings on Tuesday, Aug. 1. However, Amazon.com's (AMZN) more than 30% rise for the year certainly didn't help its earnings this week.
Apple is expected to report earnings of $1.57, up from $1.42 in the year ago period, according to analysts surveyed by FactSet. Revenue is expected to rise to $44.9 billion, vs. $42.4 billion in the 2016 third quarter.
The Cupertino, Califo-based company will be the last of the big cap tech companies to report earnings this season. On Thursday, Amazon reported a shocking earnings miss of 40 cents per share vs. expectations for $1.42 per share. While analysts seem to be forgiving due to Amazon's long-term growth plan, it's up to Apple to close out the earnings season with a bang.
However, the third quarter is historically soft for Apple as it's the down season before Apple typically launches a new iPhone model in September.
Investors will be paying close attention to Apple's iPhone sales, which dropped to 50.8 million last quarter from 51.2 million in the previous quarter. Apple's latest iPhone models, the 7 and 7 Plus, came out in September of 2016. iPhone sales are a key indicator of how Apple is doing because the iPhone has made up a little over half of Apple's revenue pie since 2007 when it first came out. Since 2011, that has risen even more to about 60% of its revenue pie, leading to criticism about the company's dependence on the iPhone.
"The iPhone is absolutely central to Apple as a company and its success since 2007, during which period its total annual revenues grew nearly ten-fold from $24 billion in 2007 to $233 billion in fiscal year 2015," Jackdaw Research chief analyst Jan Dawson wrote in a recent note.
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Investors will also be looking out for the growth in Apple's Services business, which is its second biggest source of revenue and includes the App Store, iTunes, Apple Music, iCloud, Apple Care and service parts, Apple Pay and licensing. Apple CEO Tim Cook said on the company's first quarter earnings call in January that it wants to double its services business by 2020. This would imply a revenue in 2020 of $48 billion to $50 billion, RBC Capital analyst Amit Daryanani wrote in a note.
For the previous quarter, Apple's revenue from services came in at $5.99 billion, beating expectations for $5.78 billion and representing a 20% rise from the year ago period.
Daryanani noted that Apple's highly anticipated 10th-anniversary iPhone model, due out this fall, could help continue to drive up its revenue from Services. The new iPhone model could expand its iOS installed base, which would lead to more users of its Service businesses. Apple announced in June that Apple Music had reached 27 million paid subscribers, up from 20 million in December.
But what investors are really interested in is just how much money the iPhone 8 will make for Apple at the end of 2017 and into 2018. Apple typically releases its new iPhone in September but supply concerns mean it could be pushed back to October or November this year.
In a note to investors, Credit Suisse analyst Kulbinder Garcha said he thinks the iPhone 8 will create a super-cycle due to pent up demand for a new phone as customers have held out for the iPhone 8. "We remain convinced that the iPhone product cycle will be significant in terms of driving multi-year unit growth, and maintain our conviction on Apple's ability to introduce new higher pricing tiers with improved mix," he wrote.
Apple's shares fell 0.4% to $148.96 on Monday morning.