Apple Q4 FY2021 Earnings Preview: Key Insights and What to Expect
Explore Apple's Q4 FY2021 earnings report releasing on October 28, focusing on revenue growth, profit margins, and the impact of supply chain challenges.
Spotlight on Apple's expanding services segment
Highlights to Watch
- Analysts predict earnings per share (EPS) of $1.21, up from $0.73 in Q4 FY 2020.
- Services revenue is anticipated to grow steadily year-over-year (YOY), though at a more moderate rate than recent quarters.
- Overall company revenue is projected to rise significantly despite ongoing global supply chain disruptions.
Apple Inc. (AAPL) continues its impressive momentum, poised to deliver its strongest annual profit and revenue growth in five years for fiscal 2021, which concluded in September. This robust performance comes despite the widespread economic challenges triggered by the COVID-19 pandemic. However, the road ahead may present hurdles. The global semiconductor shortage could force Apple to reduce iPhone 13 production targets by 10 million units. Additionally, intensifying antitrust investigations by the U.S. Department of Justice (DOJ) raise the possibility of legal challenges against the tech giant.
Investors will closely monitor how these factors influence Apple's earnings and revenue growth when the company announces its Q4 FY2021 results after market close on October 28, 2021. Analysts expect strong adjusted EPS and revenue growth compared to the same quarter last year, although the pace may slow relative to the previous two quarters.
Apple's recent rapid expansion has been fueled largely by surging demand for its hardware and services, driven by millions adapting to remote work, education, and entertainment during the pandemic.
Another critical focus area is Apple's services revenue. While traditionally known for its iconic hardware like iPhones and Macs, Apple has strategically grown its higher-margin, less cyclical services business to enhance profitability and reduce reliance on hardware sales. Analysts forecast continued healthy growth in services revenue this quarter, albeit at a slower rate than the past three quarters.
Despite impressive growth, Apple's stock performance over the past year has been mixed. After lagging behind the market for much of late 2020, shares surged in December and January but then underperformed from February through August. A brief outperformance occurred in early September, followed by further underperformance. Over the trailing 12 months, Apple’s stock has returned 30.0%, slightly below the S&P 500’s 34.3% return.
Apple’s Earnings Track Record
Apple has consistently delivered year-over-year adjusted EPS growth in recent years, with only three quarters of decline in the last 19, including a slight dip in Q4 FY 2020. The first half of FY 2021 saw the fastest quarterly earnings growth in nearly five years. For Q4 FY 2021, analysts anticipate a 65% YOY EPS increase—a slowdown compared to the prior two quarters but still among the fastest growth rates since early 2017.
Revenue growth has been less steady, with two quarters of declines and six quarters with growth under 5% over the past 19 quarters. Four of those saw growth below 2%, including Q4 2020. However, FY 2021 has marked a revenue surge, with 53.6% YOY growth in Q2 and 34.4% in Q3. Q4 is expected to continue this trend with a 30.2% YOY increase, ranking as the third-highest revenue growth in five years.
Source: Visible Alpha
Focus on Services Revenue
Apple’s services segment encompasses digital content and streaming platforms such as the App Store, Apple Music, Apple Arcade, Apple News+, and Apple TV+, along with revenue from AppleCare, advertising, cloud services, Apple Card, and Apple Pay. Since pivoting towards services in 2015 amid slowing iPhone sales, Apple has sought to boost profit margins, as services generate significantly higher margins than hardware. This strategic shift means that each additional dollar of services revenue disproportionately enhances overall profitability.
Over the last 19 quarters, services revenue growth has ranged between 12.6% and 40%, frequently trending toward the higher end. Growth accelerated in FY 2021 with Q1, Q2, and Q3 posting 24.0%, 26.6%, and 32.9% YOY increases respectively. For Q4 FY 2021, analysts expect a 20.7% YOY rise, indicating solid growth though at a decelerated pace compared to earlier quarters in the fiscal year.
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