Apple Q3 FY2022 Earnings Report Preview: What to Look For

Focus on Apple's Services Revenue

Key Takeaways

  • Analysts estimate EPS of $1.20 vs. $1.30 in Q3 FY 2021.
  • Services revenue is expected to increase at a slower rate YOY.
  • Overall revenue growth is expected to slow.

Apple Inc. (AAPL) is expecting a slowdown in the economy, and has projected lower earnings and revenue growth as a result. The company is reported to be taking a more cautious approach by holding off on backfilling some positions or adding new staff as the threat of recession looms.

Even so, Apple announced it is planning to increase its compensation budget. This is likely in response to unionization efforts at its stores across the U.S.

The focus remains on Apple’s services revenue and its impact on overall profit because sales of advertising, the App Store and other services generate larger margins than the company’s physical products. Even with a focus on services, Apple is still preparing to launch more products. The company is reported to be planning to introduce several new iPhones, Apple watches, desktops, laptops, and more.

Investors should note that much like other tech companies, Apple’s share price has declined, but it is still outperforming many of its peers on the Nasdaq. Despite outperforming others, analysts are expecting Apple’s revenue not to grow at the rate it did in FY2021. Restrictive pandemic lockdowns in China that affected its production and demand there, recession fears, and inflation are leading many consumers to cut back on buying new electronics. This doesn’t seem to have caught Apple by surprise, as it plans to keep iPhone production flat in 2022.

Graph of one year percentage return for Apple and S&P 500

Apple Earnings History

Apple reported Q2 earnings that exceeded analysts’ expectations. EPS rose 8.6% compared with the year-ago quarter, the slowest rise since the company's earnings declined in the final quarter of FY 2020. Apple’s EPS and revenue have been going up year-on-year (YOY) every quarter since Q4 FY 2020 but at a slowing rate.

The company’s focus has shifted over the years to focus more on the services and subscriptions it offers. In Apple’s revenue report, it divides its sales by physical products and services offered. Apple continues to see the sale of software, services, and subscriptions increase while some of the revenue from physical products is decreasing over time.

Estimated Earnings Table

Apple Key Stats
 Estimate for Q3 FY 2022 Q3 FY 2021  Q3 FY 2020
 Earnings per share ($) 1.20 1.30 2.58
 Revenue ($B)  82.7  81.4 59.7
 Services Revenue ($B)  19.7  17.5 13.2

Source: Visible Alpha

The Key Metric

Investors should continue to focus on Apple’s services as a key metric. Its services include the company's digital content stores and streaming services, such as its various App Store platforms, Apple Music, Apple Arcade, Apple News+, Apple TV+, and Apple Fitness+. Apple also generates services revenue from AppleCare, advertising services, cloud services, and other services, including Apple Card and Apple Pay.

It's more economical to build up a services business than to release newer iPhones, iPads, MacBooks, or other physical products. Services revenue continues to outpace Apple’s product revenue. Analysts expect the company to generate $79.8 billion in services revenue for this fiscal year, up 16.6% compared with the previous year. Although services sales continue to grow each year, they still comprise a smaller portion of Apple's revenue compared with its physical products.

Article Sources
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  1. Bloomberg. “Apple to Slow Hiring and Spending for Some Teams Next Year.”

  2. The Wall Street Journal. “Apple Isn’t Priced for a Recession.”

  3. Bloomberg. "Apple to Keep iPhone Production Flat as Market Grows Tougher."

  4. Apple. "Apple Reports Second Quarter Results."

  5. Apple. "Form 10-K for the Fiscal Year Ended Sept. 25, 2021."

  6. Apple Inc. “Form 10-K for the Fiscal Year Ended Sept. 25, 2021," Page 2.

  7. Apple. "Form 10-K for the Fiscal Year Ended Sept. 25, 2021," Page 37.

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