Earnings Report Preview | Urgently Needing a "New Engine," Apple's Q3 Profit Growth May "Stall"
Apple Inc. will announce its third-quarter earnings on July 31, with analysts expecting earnings per share of $1.42 and sales of $89.1 billion, representing year-on-year growth of 1.4% and 3.9%, respectively. However, investors have a lukewarm attitude towards Apple stock, which has fallen 14.5% this year. The market is focused on the release of the fall product line, and analysts point out that Apple faces regulatory pressure and challenges from competitors
According to the Zhitong Finance APP, since the beginning of this year, investors' attitudes towards Apple (AAPL.US) stock have become increasingly lukewarm. The consumer electronics giant is set to announce its Q3 earnings and guidance for the next fiscal quarter on July 31 next week. Whether market sentiment can be reversed will be revealed in this earnings report.
Analysts surveyed by FactSet expect the Cupertino, California-based company to report a Q3 earnings per share of $1.42 and revenue of $89.1 billion. In the same period last year, Apple reported earnings per share of $1.40 and revenue of $85.78 billion. Wall Street expectations indicate that Apple's profit is expected to grow only 1.4% year-on-year, while revenue is expected to grow by 3.9%.
For the next fiscal quarter, analysts predict earnings per share of $1.65, an increase of just 1 cent compared to the same period last year; revenue is expected to grow by 2.9%, reaching $97.67 billion.
As of the time of writing, Apple’s after-hours trading rose slightly by 0.5%, closing at $214.9. However, since the beginning of this year, Apple's stock price has fallen by a cumulative 14.5%.
Next Catalytic Factor
The next major catalytic factor for Apple's stock price may be the fall product line, including the iPhone 17 series. Apple typically holds its annual product launch event from early to mid-September. However, analysts expect this round of phone updates to be only minor upgrades.
Before that, competitor Samsung Electronics released a foldable smartphone on July 9, attracting widespread attention; Google (GOOGL.US) will also hold an event on August 20 to launch new Pixel phones, smartwatches, headphones, and other products.
Meanwhile, Apple's services business is facing pressure—a court ruling has limited the fees it can charge. Additionally, a pending ruling in a U.S. antitrust case may affect the lucrative partnership between Apple and Google (with Google as the default search engine on iPhone).
Last Wednesday, Monness Crespi Hardt analyst Brian White stated in a report to clients that Apple "is facing a host of concerning issues." He specifically mentioned regulatory hurdles and the impact of U.S. President Donald Trump's trade policies. Nevertheless, White reiterated a "buy" rating on Apple stock, with a target price of $245.
Last week, Goldman Sachs also expressed a positive outlook on Apple's Q3 performance, stating that revenue and EPS are expected to exceed expectations, maintaining a "buy" rating on Apple with a target price of $251. Goldman Sachs noted that the revenue growth of Apple's services business will remain resilient due to the continued acceleration of App Store consumption, despite the increased uncertainty from opening third-party payment channels.
The firm stated that in the next 12 months, the upgrade demand for iPhones will be supported by two main factors: first, U.S. wireless carriers increasing promotional efforts, and second, product innovations including changes in Apple's smart features and design. However, uncertainties regarding trade policies and tariffs, as well as risks to Apple's advertising revenue, remain bearish factors to watch in the short term.
Stock Price Stuck in Range Fluctuation
White stated, "Apple's upcoming earnings report is facing a series of headwinds." These headwinds include "tariffs, setbacks in the artificial intelligence sector, economic challenges in the Chinese market, strict scrutiny of the App Store, and the potential ripple effects of the U.S. Department of Justice's ruling on the Google antitrust lawsuit (expected to be released at the end of August) In addition, Apple itself is also deeply embroiled in an antitrust lawsuit from the Department of Justice.
Previously, CEO Tim Cook pointed out during the earnings call that due to supply chain optimization, the impact of tariffs in the second quarter was limited, but he warned that the future impact is difficult to predict due to potential policy changes. Cook estimated that assuming current global tariff rates remain unchanged, President Trump's tariffs will increase costs by $900 million in the third fiscal quarter (April to June 2025).
Morgan Stanley analyst Eric Woodring believes that Apple's stock price will be trapped in the range of $195 to $215 until investors clarify a series of issues. He noted that these issues include the growth prospects of the services business, the impact of tariffs, and the Department of Justice's remedial ruling in the Google antitrust case.
Woodring has a rating of "Overweight" on Apple stock, with a target price of $235.
IBD MarketSurge charts show that Apple stock is in the lower half of a 30-week consolidation range, with a buy point at $260.10, which is also the historical high set on December 26 of last year.
Additionally, Apple’s stock price is currently below the 200-day moving average, which is a negative signal.
Recently, Apple has hardly presented any highlights to excite investors. The content announced at its Worldwide Developers Conference was unremarkable, and analysts have stated that Apple has significantly fallen behind in the field of artificial intelligence
