- This is the second article in our Apple Earnings Preview series. Today we’re talking about a business that could shine in an otherwise difficult fiscal first quarter: the iPad.
- The segment should benefit primarily from favorable product launch timings, as well as less severe currency headwinds and the easiest comp in the last 20 quarters.
- Apple Maven has you covered appleof (AAPL) – Get Free Report Real-time earnings via live blogs starting after the closing bell on February 2nd.
Figure 1: Apple’s first quarter earnings: this should be a bright spot
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Signs of a tough first quarter for Apple
As Apple’s executives themselves predicted, Cupertino’s company’s first-quarter results should be plagued by a long list of challenges. At the top is supply constraints, with Apple warning that iPhone Pro and Pro Max sales have fallen short of expectations this quarter.
But there is one particular segment that, in my opinion, is likely to work strongly. Accounting for his 7% of fiscal 2022 revenue (see below), the iPad should be a rare bright spot in what I would expect to be an ugly financial result otherwise.
Figure 2: Apple’s fiscal 2022 earnings by segment.
DM Martins Research
Apple’s iPad: New, Easy Comps, Favorable FX
One of Apple’s revolutionary products, the iPad, was unveiled in 2010 in a big way. However, since late 2014, we’ve entered a period of long-term decline in iPad sales, which led me to compare the device to Apple’s already outdated iPod at the time.
But for one reason in particular, COVID-19, things have definitely gotten better for the product category. iPad sales skyrocketed in 2020 as consumers began to work and play at home. In Q2 2021, iPad sales grew 78% year-over-year, see chart below.
Figure 3: Apple’s iPad sales growth since 2019.
DM Martins Research
The problem is that the tailwind of refraining from going out has settled down. Over the past four quarters, iPad revenue has been declining, and last year he was down 13%. But ultimately, I think this is about to change.
For starters, Apple’s iPad faces its easiest comp in the last 20 quarters. Against a sharp 14% sales decline printed in the same quarter of 2022, Apple’s tablet business should look very good this time around.
The main impetus was the launch of a number of new iPad products in October 2022. The 10th generation iPad came in four different colors, and the new iPad Pro featured Apple’s new M2 chip.
On a broader note, the expected strength of iPad sales in the first quarter of the fiscal year offset the weakness observed last quarter for the same reason: product launch timing. Note that the 9th generation iPad and the previous iPad Pro were released in Q3 and Q4 of 2021 respectively.
Finally, Apple CFO Luca Maestri warned of a serious currency-driven headwind to earnings in late October 2022.
But almost until that day (see yellow cross below), the US dollar finally started to fall against a basket of currencies following Apple’s recent earnings report. As such, the negative currency impact on iPad sales is likely to be smaller than many realize.
Figure 4: US dollar performance.
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Apple will report its fiscal first quarter earnings on February 2nd. Which segments do you think will perform best compared to expectations?
(Disclaimer: This is not investment advice. The author may own one or more of the stocks mentioned in this report. Also, if the article contains affiliate links These partnerships do not affect your editorial content. Thank you for supporting Apple Maven.)
