Apple AAPL is set to report third-quarter fiscal 2021 results on Jul 27.

Apple did not provide revenue guidance, given the uncertainty around the impact of the coronavirus pandemic. However, management expects revenues to grow double digits year over year but decline sequentially. Supply constraint (primarily iPad and Mac) is expected to hurt third-quarter sales by $3-$4 billion.

The Zacks Consensus Estimate for revenues is currently pegged at $73.14 billion, indicating growth of 22.5% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for earnings is currently pegged at $1 per share, up by a penny over the past 30 days and indicating 54% growth from the figure reported in the year-ago quarter.

Notably, the company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 23.01%, on average.

Apple Inc. Price and EPS Surprise

Apple Inc. price-eps-surprise | Apple Inc. Quote

Let’s see how things are shaping up for the upcoming announcement.

Strong iPhone 12 Demand to Drive Y/Y Sales Growth

Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 53.5% of net sales in the last-reported quarter, wherein sales increased 65.5% year over year to $47.94 billion.

Strong demand for the 5G-enabled iPhone 12 is expected to have driven the top line in the to-be-reported quarter. However, increased competition in the smartphone space is expected to have hurt revenues sequentially. Per Canalys, Apple lost the second spot to Xiaomi in terms of market share in second-quarter 2021. Samsung led the market with 19% share trailed by Xiaomi’s 17% and Apple’s 14%.

The Zacks Consensus Estimate for iPhone sales currently stand at $33.80 billion, indicating 28% growth from the year-ago quarter’s reported figure. On a sequential basis, the figure is expected to decline 29.5%.

Services Momentum to Boost Top Line

The Services segment has become the new cash cow for Apple, which currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The increasing popularity of the App Store has been a key catalyst. Apple currently has more than 660 million paid subscribers across its Services portfolio. App Store continues to grab the attention of prominent developers from around the world, helping the company offer exciting new apps that drive traffic.

Coronavirus-led social-distancing norms are expected to have further boosted App Store sales in the to-be-reported quarter. Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle are also expected to have contributed to overall growth.

Apple TV+’s endeavors to expand its streaming content portfolio is expected to have improved Apple’s footprint in the streaming market currently dominated by the likes of Netflix NFLX, Disney+ and Amazon AMZN.

The launch of Apple Podcast Subscriptions, a service that offers subscriptions to shows developed by premier studios like Lemonada Media, Luminary, Realm as well as media and entertainment brands including CNN, NPR, The Washington Post and Sony Music Entertainment, is expected to aid services revenues.

In April, Apple Music announced the launch of a set of playlists, dubbed City Charts, that lists top 25 songs from more than 100 cities around the world. The company also introduced record label searches and pages, allowing users to find and track songs and albums from specific record labels.

Alongside, Apple added a lyric-sharing feature that allows users to share specific parts of the song through iMessage, Facebook, and Instagram stories. In June, Apple Music started offering lossless audio and Dolby Atmos track features to its subscribers.

These new features are expected to have enhanced Apple’s competitive position against incumbents such as Spotify SPOT, Amazon Music services, YouTube Music, ByteDance, Deezer, iHeartMedia, and SiriusXM.

Apple’s initiatives to broaden its ecosystem through partnerships with Amazon and Google are positive for the Services segment.

The Zacks Consensus Estimate for Services revenues currently stands at $16.57 billion, indicating 26% growth from the year-ago quarter’s reported figure.

Wearables’ Growth to Remain Strong

Apple is dominating the wearables market, thanks to strong adoption of Apple Watch. The company’s Fitness+ subscription service, built on Apple Watch, is a game changer. Fitness+ tracks health- and workout-related data from Apple Watch that users can view on their iPhones, iPads or Apple TVs.

Apple showcased watchOS 8, which promises new exciting features including updates to Wallet and Home apps, in the to-be-reported quarter. The company also received approval from China’s National Medical Products Administration to bring its much-discussed electrocardiogram (ECG) feature in its Apple Watch to China.

The consensus estimate for Wearables, Home and Accessories revenues currently stands at $7.41 billion, indicating 18% growth from the year-ago quarter’s reported figure.

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