Earnings season continues this week with reports from stock giants Apple Inc. (NASDAQ:AAPL) , Amazon.com, Inc.(NASDAQ:AMZN), and Paypal Holdings Inc (NASDAQ:PYPL). Let’s take a look at how increasing competition, demand concerns, improving logistics, and new product releases will impact reports from each company.
Apple is set to release its Q2:2016 earnings on Tuesday, April 26 after market close. For this quarter, analysts are expecting revenues of $51.97 billion and earnings of $2 per share, compared to revenues of $58.01 billion and earnings of $2.33 per share in the same quarter of last year.
Many attribute this predicted drop in earnings to slowing iPhone demand, which makes up 70% of the company’s total revenue and represents a critical metric for financial performance. While the iPhone 6 and 6 Plus generated 55% revenue growth for the iPhone in the same quarter of last year, investors are concerned as management predicts a steep decline in sales for the quarter. Analysts expect the company to report only 51 million iPhones sold this quarter, marking a 17% y/y decline.
While this quarter marks slowing growth for the company, many believe the release of the iPhone 7 in September will get the company back on track, as upgrade cycles have been slow the last few quarters. Similarly, the recently released lower-priced iPhone SE is expected to do well in emerging markets such as China and India, where consumers have less disposable income, allowing Apple to better compete with lower priced competitors. Since its release, Chinese stores have reported running out of iPhone SEs, indicating healthy demand for the product. In fact, last quarter iPhone unit sales rose 18% in China while India demonstrated a 48% increase in overall currency sales.
Known for innovation, investors will be watching for product updates and innovative announcements as a sign that the company is not relying only on the iPhone for growth. While the company has increased focus on its Services segment, which includes Apple Pay, Apple Music, Apple TV, and Apple Watch, these products are not expected to have a significant impact on revenues. However, revenue generated from non-iPhone products and services will indicate managements’ ability to sustain its growth momentum.
Investors will also be watching for any dividend announcements due to excess cash levels. The company has steadily increased dividends in the past few years and investors are expecting another increase in the high-single digits to low-teens. The size of the dividend will signal management’s ability to generate constant and growing return over the next few years.
Prior to earnings, top analyst Gene Munster of Piper Jaffray weighed in on the stock with an Overweight rating and $172 price target on April 20, 2016. The analyst remains hopeful that the company will remain successful going forward. He remarks on the long-term profitability of the company, noting, “Beyond June, we believe the future of Apple remains bright with the shift to annual upgrade offerings, emergence of the Apple Watch, increased contribution from Services, and the potential for the Apple Car.” However, he notes investor concern regarding sustainable growth, stating, “We believe the bigger question for shares of AAPL is how to think about iPhone growth longer-term and what other factors can drive overall revenue growth. At the core is a skepticism that Apple can show sustained growth and show that the company is more than a product cycle story.” Ultimately, the analyst believes realistic management guidance should generate investor trust.
According to TipRanks, out of all the analysts who have rated the company in the past 3 months, 92% gave a Buy rating while 8% remain on the sidelines. The average 12-month price target for the stock is $136.42, marking a 29% upside from where shares last closed.
Amazon is expected to report Q1:2016 earnings on April 28 after market close. For this quarter, analysts are expecting the company to post revenues of $27.99 billion and earnings of $0.58 per share, compared to revenues of $22.72 billion and a loss per share of ($0.12) for the same quarter of last year.
Investors will be watching for Prime membership subscriber growth and revenues, as last quarter the company posted strong Prime subscription growth of 47% in the U.S. and 51% internationally. Prime lures customers with free shipping, convenience, and new features such as Prime video, music, and gaming. Essentially, Amazon has increased the value proposition for Prime, and it seems to be working. The segment continues to grow despite price increases, with events like Prime Day generating impressive numbers and contributing to increased gross merchandising volume. In addition to offering video services in Prime, Amazon has recently launched its own streaming service to compete directly with Netflix, pricing it $1 lower than its major competitor.
Another segment to watch for this quarter is its $10 billion cloud computing service, AWS. While the company has generated impressive revenues from this segment, it has also heavily reinvested funds, which may lead to increased costs for the quarter. However, this reinvestment is expected to drive long-term growth and success. Other investments this quarter include the logistics optimization, as the company signed an agreement to lease 20 Boeing 767s, enabling the company to have better control of shipping. Similarly, the company purchased a 10% stake in (Air Transport Services Group) ATSG, providing the company increased negotiating power with logistics giants such as FedEx.
Heading into earnings, Gene Munster of Piper Jaffray weighed in on the stock on April 13, 2016, with an Overweight rating and $800 price target following a positive U.S. teen survey on the company. In addition to “clearly taking share from other top websites,” such as Nike and eBay, the analyst believes “Amazon is now well position to retain mindshare, driving long-term generational growth.”
According to TipRanks’ statistics, out of all the analysts who have rated the company in the past 3 months, 89% are bullish while 11% remain neutral. The average 12-month price target for the stock is $749.59, marking a 21% upside from where shares last closed.
Paypal Holdings Inc
PayPal is set to release its Q1:2016 earnings on April 27 after market close. Analysts predict revenues for the quarter of $2.5 billion and earnings of $0.35 per share, compared to last quarter’s non-GAAP revenues of $2.56 billion and earnings of $0.36 per share. The company split from eBay in July of 2015.
The company has recently increased its focus in mobile payments, reporting last quarter a 174% y/y increase in payment volume on social payments app Venmo, which represents 3% of the company’s total payment volume (TPV). The company also acquired mobile remittances company Xoom in November, adding 1.6 million active customer accounts which helped generate overall revenue growth. Similarly, the company signed an agreement this quarter with domestic merchant processor First Data to accept tokenized payments in brick-and-mortar stores. Investors will be watching for user growth numbers, as the company added 6.6 million users last quarter and finished the year with 179 million active users.
Despite displaying growth last quarter, investors remain concerned over increasing competition from the likes of Apple, Facebook, and Amazon. Investors are worried that Apple’s new payment platform, Apple Pay, will steal a significant share of mobile payments from PayPal, as 20% of PayPal’s TPV came from iOS devices in 2015. Specifically, Apple Pay is competing with PayPal. PayPal charges U.S. merchants 2.9% per transaction, where Apple does not charge a set fee. Instead, Apple collects a standard interchange fee that can sometimes undercut PayPal depending on the card used. Similarly, Facebook announced the integration of social payments into its Messenger App, threatening Venmo’s market share with a reported 800 million active users at the end of 2015.
While many worry about competition, analysts have high hopes for PayPal’s One-Touch, an app that lets users make on-the-go payments without having to log in with a username, password, and billing information. In fact, analyst Daniel Perlin of RBC weighed in on the stock with an Overweight rating and $42 price target on April 20, 2016, following his firm’s survey, which indicated that One-Touch has twice the conversion rates of more traditional platforms such as Visa. In December of 2015, One-Touch grew its user base by 110% y/y and its consumer market base by a whopping 782% y/y. Perlin believes this data reinforces PayPal as a leader in mobile payments. He states, “We believe this key statistic supports our belief that the One Touch strategy/ solution bridges the gap from PYPL’s legacy browser-based model to a mobile first model.” Overall, Perlin notes a “compelling long-term market opportunity in digital commerce” due in part to the “secret sauce” of Venmo and PayPal Credit [which allows] the company to increase the profitability of transactions inside the Paypal Network.”
According to TipRanks’ statistics, out of all the analysts who have rated the company in the past 3 months, 55% gave a Buy rating, 5% gave a Sell rating, and 40% remain on the sidelines. The average 12-month price target for the stock is $42.05, marking a 4% upside from where shares last closed.