Apple Q2 2017 rev miss estimates, issues soft Q3 2017 rev view

While reporting the fiscal 2017 second quarter results on Tuesday last week, Apple Inc (NASDAQ: AAPL) said that it sold 50.8 million iPhones – few notches lower than analysts expectation of 52 million- in the March quarter. That caused a 2% drop in the stock price to $147.

The fall was also aided by the quarterly revenue miss. We forecast the stock, which closed at $148.96 on Friday, to remain neutral with bearish bias for the forthcoming week due to reasons mentioned below.

Aided by 18% y-o-y rise in the services revenue and increase in the Mac sales volumes, the Cupertino-based company reported fiscal 2017 second quarter net income of $11.03 billion or $2.10 per share on revenues of $52.9 billion.

In the same period last year, Apple reported net income of $10.52 billion or $1.90 per share on revenues of $50.56 billion. On average, analysts polled by Thomson Reuters anticipated earnings of $2.03 per share on revenues of $53 billion.

Apple

During the second-quarter, Apple sold 50.76 million iPhones worth $33.25 billion, compared with 51.19 million worth $32.86 million in the second-quarter of 2016. The company sold 8.92 million iPads worth $3.89 billion in Q2-2017. Last year, Apple sold 10.25 million iPads valued at $4.41 billion. However, for the quarter ended April 1st , 2017, Apple reported an increase in the sale of Macs to 4.199 million, from 4,034 units in the quarter ended March 26, 2016. Correspondingly, the quarterly Macs revenue increased to $5.84 billion, from $5.11 billion in Q1 2016. Services revenue increased to $7.04 billion in the recent quarter, compared with $5.991 billion in the corresponding quarter of 2016. Similarly, revenue from other products, which include Apple TV, Apple Watch, iPod, and third-party accessories, increased to $2.87 billion in Q2 2017, from $2.2 billion in Q2 2016. As it can be understood, services revenue and other product revenues were responsible for the y-o-y increase in revenues.

Apple also issued a soft guidance for the current quarter. The company expects revenue to range from $43.5 billion to $45.5 billion in Q3 2017. The gross margin is anticipated to be between 37.5% and 38.5%. Analysts are forecasting third-quarter revenues of $45.7 billion and gross margin of 38.3%. On the positive side, Apple’s board has raised the quarterly dividend by 10.5% to $0.63 per share. The dividend will be paid to shareholders of record on May 18, 2017. Thus, considering the drop in the iPhone sales volumes and soft third-quarter outlook, we forecast a decline in the share price on account of profit booking.

Technically, an overbought scenario is also indicated by the RSI indicator. Additionally, the MACD indicator has made a negative divergence with the price movement. Thus, we can expect a short-term technical correction in the stock.

To gain from the stock’s decline, a binary trader can purchase a put option expiring on or around May 16th . A trader can also increase the odds of success by purchasing the contract when Apple trades at about $149 in the NASDAQ.

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