Apple (AAPL) Outlook: iPhone Expectations Come Down
Post-Apple Event September 2024: Outlook Changes
On September 9, 2024, Apple unveiled its new releases. The iPhone and Apple Intelligence took center stage, as the market eagerly awaited visibility into a possible meaningful replacement cycle for the iPhone. However, the announcements were in line with expectations with no meaningful surprises. Overall, the demos seemed to lack impact, especially on Apple Intelligence. In addition, some analysts have been highlighting that early demand indicators for Pro models are off to a slow start. These issues have led to some iPhone downward revisions for both Q4 2024 and FY 2025 and have contributed to the stock’s recent underperformance.
Figure 1: Apple Product Updates
Source: Apple Event (September 9, 2024). Accessed image through macstadium.com on September 17, 2024. https://www.macstadium.com/blog/its-glowtime-apple-event
Total revenues expected for fiscal Q4 have started to tick down slightly from the beginning of last quarter, according to Visible Alpha consensus, from $94.7 billion to $94.5 billion. This small move is surprising, given Apple announced its new lineup on September 9, 2024, last week. Instead of numbers moving up, sentiment seems to reflect a view that the event was a bit underwhelming. Since early August, expected Q4 iPhone units declined from 53 million to 52 million and FY 2025 decreased from 248 million to 230 million iPhone units. Currently, Q4 is expected to deliver $45.3 billion in iPhone sales, down from $46.2 billion and $200 billion in 2024. Overall full-year iPhone revenue expectations have somewhat reversed since early August 2024. Will the new Apple Intelligence capabilities help to drive upgrades?
Figure 2: Apple Revisions
Source: Visible Alpha consensus (September 17, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.
While August and September have been volatile for Mega-cap technology stocks, the Apple stock has not reacted much since last quarter. Even though the company showcased its new product lineup, the stock has traded down over 2% since the September 9 event, underperforming the S&P 500. Could the Q4 outlook provide a positive catalyst for the stock?
Figure 3: Apple Consensus Expectations for Q4 2024, Past Earnings Surprises, Revisions, and CAGR
Source: Visible Alpha consensus (September 17, 2024). Stock price data courtesy of FactSet. AAPL’s current stock price is as of the market close on September 16, 2024.
Expectations for the high-margin Services segment edged up for Q4 and FY 2024. The gross margin for the Services segment is over 70%, significantly higher than the 36% gross margin for Products. Given the large installed base, we are looking forward to what the company says in the Q4 earnings release about growth in Services and the role of Apple Intelligence in FY 2025.
Vision Pro will show another set of results this quarter. In Q4, the consensus of four analysts estimated 116,300 units to be sold, generating $451 million. For the full year, consensus revenue estimates for the Vision Pro have remained flat at $1.18 billion.
Figure 4: Apple Consensus Outlook
Source: Visible Alpha consensus (September 17, 2024). Stock price data courtesy of FactSet. AAPL’s current stock price is as of the market close on September 16, 2024.
