Key Takeaways

  • Analysts estimate EPS of $0.99 vs. $0.64 in Q2 FY 2020.
  • Services revenue is expected to grow at a faster pace YOY, but decelerate from Q1 FY 2021.
  • Companywide revenue is expected to increase at the fastest pace in at least 16 quarters.

Apple Inc. (AAPL) is weathering the turbulence of the COVID-19 pandemic better than most companies as millions of users shelter and work at home, sharply boosting demand for Apple devices and services. While the company posted widely varying quarterly results in fiscal 2020, analysts now expect Apple in the coming fiscal 2021 to post the fastest revenue and earnings growth in at least five years. Growth like that is highly unusual for a company of its size.

Investors will look closely to see if Apple has a chance of meeting those optimistic forecasts when the company reports earnings on April 28 after market close for Q2 FY 2021. Analysts expect the company to post its strongest quarterly earnings per share (EPS) and revenue growth YOY in several years. Note that Apple is reporting fiscal Q2 results at this time because the company's fiscal year ends in September.

Investors will also look at another key metric, Apple's services revenue, which is a crucial, high-margin business and a major part of Apple's strategy of diversifying its revenue mix. In Q2, analysts expect services revenue to grow faster than the same quarter a year ago, but at a slower rate than the latest reported quarter, which is Q1 FY 2021.

Apple's stock performance has mirrored its overall strong earnings reports in recent quarters. The company's stock broke away from the broader market following its Q2 FY 2020 earnings report, and since then has outperformed the S&P 500, sometimes by a wide margin. The stock was further buoyed by the Q3 FY 2020 earnings release. Apple shares dipped in September 2020 before gradually reclaiming lost ground through late January 2021, at which point they dipped again. Most recently, in April 2021, Apple shares have risen, helping to provide a 1-year trailing total return of 91.7% versus 45.4% for the S&P 500.

One Year Total Return for S&P 500 and Apple
Source: TradingView.

Apple Earnings History

Apple's quarterly EPS performance has fluctuated during COVID-19 while remaining generally positive, save for a decline of 3.0% for Q4 FY 2020. Otherwise, since Q2 FY 2020, the first quarter to reflect the pandemic, quarters with YOY earnings growth have ranged from 3.8% to 34.6%. Analysts now expect Apple to significantly exceed the upper end of that range, posting YOY EPS growth for Q2 FY 2021 of 54.8%. This would be the fastest quarterly EPS growth in at least 12 quarters.

Apple's revenue also has been consistently improving in recent quarters. The company has posted YOY revenue gains in 9 of the past 11 quarters. Revenue growth nearly stalled at a 0.5% gain in Q2 FY 2020, but the pandemic period has also seen the strongest gains. Revenue grew by 21.4% YOY for Q1 FY 2021, the strongest pace in nearly three years. Analysts estimate that Q2 FY 2021 will far outpace even that torrid rate, with 32.7% revenue growth.

Apple Key Stats
  Estimate for Q2 FY 2021 Q2 FY 2020 Q2 FY 2019
Earnings Per Share ($) 0.99 0.64 0.61
Revenue ($B) 77.4 58.3 58.0
Services Revenue ($B) 15.7 13.3 11.5

Source: Visible Alpha

The Key Metric

As mentioned, a major focus for investors this quarter may be on Apple's services revenue. The company is pivoting toward services because they have dramatically higher profit margins and have steadier sales relative to Apple's popular hardware products. Apple's services include streaming services such as movie and TV entertainment provider Apple TV+, video game seller Apple Arcade, news services, and digital content stores including the iTunes Store and the App Store, as well as Apple Pay, and AppleCare. It also includes a variety of other services that support Apple's hardware devices. Apple's ability to shift growth toward its highly profitable services area shows how it can pivot and execute strategy despite its monumental size.

Analysts predict that Apple will grow its services revenue by 17.6% to $15.7 billion for Q2 FY 2021, the fastest growth in six quarters except for Q1, which saw nearly 24% growth. The company has achieved steady and significant growth in services revenue during the past four years, with quarterly YOY growth ranging from 12.6% to 40.0%. Analysts predict that Apple will generate services revenue growth of 18.8% for FY 2021, the fastest growth rate since FY 2018.