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Some last-minute thoughts about Apple’s earnings

ICE Graveyard 26/07/2016 Romain Dillet

In about an hour, Apple will announce its quarterly earnings. So you’ll soon be able to read all about it on TechCrunch as we have a team ready to look at all these numbers and find out if they’re moving up or down. But I’m going to use this opportunity to give you a few thoughts about what’s going to happen and what you should look for.

  • The iPhone is quickly entering the early majority part of the product adoption curve. So it means that sales will be slowing soon indeed. But everybody said that once already right before the launch of the iPhone 6. And sales exploded right after that. So procede with caution.
  • Investors are aware of this trend and are also aware that the iPhone is probably the best product category ever created when it comes to scale and margins. So they’re already bundling in this fact in the current stock market performance.
  • iPad: the 9.7-inch iPad Pro update was huge, so you can definitely expect more sales. Will it last? Unclear, but they really want to play around with the iPad and define what is the future of computers. It could be a nice bump on the bottom line.
  • Mac, Apple Watch and Apple TV won’t be a big focus of the earnings. They know they still have work to do on the Watch.
  • Apple Music: I don’t think they’re going to break out a new subscription number, the last one is from WWDC (15 million).
  • Services: Apple has been branding itself as a service company for a few months. Services at Apple is nothing new — .Mac, MobileMe, iCloud… iTunes, Apple Music, App Store, Maps… Apple is already a service company. But there’s nothing remarkable right now about Apple’s services. They’re not bad, they’re not good. They’re OK at best. But they want to invest a lot on services as we can see with the Apple Music redesign happening just a year after the launch, or the App Store changes. There are a few reasons:
  1. Squeezing out more money out of iPhone users given that sales might plateau. So you want to grab as much money as possible from existing users.
  2. Increasing customer satisfaction, stickiness, etc. Make people loyal to the Apple brand.
  3. Recurring revenue: once people don’t need to upgrade iPhones every other year, Apple needs some other form of recurring revenue.
  4. In the future, Android and iOS are going to outsource a lot of stuff to servers to keep innovating. You can’t build Google Photos or the new Photos app in iOS 10 without a powerful infrastructure, a powerful machine learning team, and a tight integration between apps and servers.
  • Nobody is going to judge Tim Cook based on this quarter. This isn’t a tipping point for Apple, not even a transition quarter. It’s a wait-and-see quarter before product launches this fall. Leading to…
  • There will be a couple of news items to watch:
  1. I expect Apple to announce the one-billionth iPhones sale.
  2. There may be car hints are there’s a lot of smoke going on around Apple’s car project.

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