Apple’s (AAPL) third-quarter earnings release is on the calendar, and investors and analysts are eagerly awaiting the news. Here’s the context: The iPhone maker reported revenue declines in the first and second quarters of this year. One contributing factor is softer demand for laptops and iPads as the pandemic-related surge in remote working slows.
The third quarter is typically Apple’s weakest. Two big questions loom: How much will the company’s sales dip? And, how will that dip affect the bottom line? Read on to find out what pundits expect and how to analyze Apple’s third quarter earnings.
Apple Stock Key Metrics
The headline metrics for Apple are revenue, gross margin and diluted EPS.
- Revenue: In the prior quarter’s earnings release, CFO Luca Maestri predicted that third-quarter revenue performance would be similar to the second quarter’s. That was a decline of about 3%.
- Gross margin: Gross margin has been a competitive advantage for Apple. Strength in this metric becomes more important when sales are declining.
- Diluted EPS: Diluted EPS performance will demonstrate how well overall Apple is managing softer sales. Apple did show a year-over-year decline in diluted EPS in the first quarter but managed to perform evenly with the prior year in the second quarter.
After those high-level numbers, more granular metrics to watch include:
- iPhone revenue: The iPhone is Apple’s flagship product and generates most of the company’s revenue. The smartphone segment also has a competitive gross margin.
- Mac revenue: In the prior quarter, Mac sales declined by double digits. Apple launched a MacBook Air, Mac Studio and Mac Pro in the third quarter.
- iPad revenue: iPad revenue also saw a year-over-year decrease in the second quarter.
- Wearables, home and accessories: This segment includes the Apple Watch and AirPods. In the second quarter, the wearables segment generated more revenue than the Mac segment or the iPad segment.
- Services revenue: Apple’s services business includes App Store, Apple Pay, Apple TV+, Apple Music and iCloud. It’s Apple’s second-largest segment in terms of revenue after the iPhone.
- Products gross margin: Analysts and investors want to see Apple maintain or improve its gross margin advantage relative to competitors.
- Services gross margin: The services business has higher margins than the iPhone segment. This is a strong and growing area for Apple.
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How Was Apple’s Previous Earnings?
Previous AAPL stock earnings had both positive and negative news for shareholders. In the second quarter, Apple outperformed analyst expectations for EPS, revenue and gross margin. EPS came in at $1.52 per share vs. an expected $1.43. Revenue was $94.84 billion vs. an expected $92.96, and gross margin was 44.3% vs. an expected 44.1%.
iPhone sales had a standout second quarter. The smartphone’s revenue totaled $51.33 billion, representing 2% growth from the prior-year quarter. That’s a good result given the softness in the overall smartphone market. In April, International Data reported that worldwide smartphone shipments had dipped 14.6% in the first three months of this year.
Mac and iPad had less success in the quarter. Mac sales dipped 31% to $7.17 billion relative to the prior-year quarter. Two factors drove the dip. First, in last year’s quarter, Apple was still enjoying a boost in computer sales related to the pandemic. That created a tough comparison for this year. Second, Apple experienced parts shortages in the 2023 second quarter.
Both factors also affected the iPad business, which saw a year-over-year revenue decline of 13% to $6.67 billion.
Apple also saw a small sales decline of 0.6% in its wearables division.
On the bright side, the company grew its services revenue more than 5% from the prior-year quarter, reaching an all-time high. This performance helped Apple hold EPS flat with the prior year despite the topline revenue decline.
What Day And Time Does Apple Report Earnings Next
Apple will report results for its third quarter of fiscal 2023 on Thursday, August 3. Look for a news release to hit the wires at about 4:30 p.m. ET. At 5:00 p.m. ET, Apple’s CEO Tim Cook and CFO Luca Maestri will host a livestream webcast to review and discuss the results. You can access the livestream via the Investor Relations page on Apple’s website.
Apple Stock Earnings Forecast
Most analysts expect Apple to report sales and EPS declines for the third quarter of 2023. The consensus predicts sales of $74 billion, which would represent a 10.8% decline from prior-year sales of $82.96 billion. The consensus EPS estimate is $1.08, or $0.12 below the third-quarter 2022 result of $1.20.
For the fourth-quarter, analysts expect a revenue decline of 9.3% vs. the prior year. The consensus EPS is $1.23, a decline from $1.29 in the fourth quarter of 2022.
Right now, it looks like fiscal 2023 is shaping up to be a tough one for Apple. How this affects your trading decisions depends on your investing style. Short-term investors may want to take some profits. But fundamentally, Apple is a strong company with competitive margins and a loyal customer base. As long as those advantages remain, long-term investors won’t be scared away by one bad year.
A larger issue is whether you can accept Apple’s current stock price. Analysts expect Apple to report EPS of $5.42 for the current fiscal year. At a stock price of $196.13, that translates to a forward P/E ratio of about 36. That’s higher than Apple’s five-year average P/E and higher than the S&P 500 P/E. A P/E that high may be outside of your comfort zone.
Not all analysts see it that way, however. Apple price targets published in June and July of this year range from $185 all the way up to $240. The consensus is $192.11.
Does AAPL Stock Usually Go Up After Earnings?
Apple stock often does rise following an earnings release. Over the last four quarters, Apple stock has risen between 2.4% and 7.6% the day after the company released its earnings. That includes the first quarter of 2023 when Apple’s earnings missed analyst expectations by $0.06 and notched a 10.5% decline from the prior year. The stock rose 2.4% between before the earnings were released and one day after.
As you’d expect, Apple stock sees larger gains when the company outperforms. In the second quarter of fiscal 2023, for example, Apple reported diluted EPS of $1.52, beating the analyst estimate of $1.43 by $0.09. The stock jumped more than 4% as a result.
Bottom Line
Apple has momentum in its high-margin iPhone and services businesses. Other segments, however, have been a drag on topline revenue. Analysts largely expect that trend to continue, likely creating a year-over-year EPS decline for the third quarter and the fiscal year.
Even so, the tech company’s stock price is resilient. With an historically high forward P/E ratio, Apple stock is expensive. For that reason, now might be a good time to hold out for a better deal on Apple—which may happen sooner than later if the company’s third quarter result is worse than expected.
When does Apple report its next upcoming earnings?
Apple will report its fiscal 2023 third quarter results on August 3 at 4:30 p.m. ET. CEO Tim Cook and CFO Luca Maestri will host a livestream webcast to discuss those results at 5:00 p.m. ET.
Where does Apple release its earnings?
Apple releases its earnings via press release across the news wires. The press release will also be published on Apple’s website.
Can you listen or watch Apple’s earnings call?
Apple’s earnings calls are open to the public. You can log into the livestream from the Investor Relations page on Apple’s website. You’ll hear prepared remarks and a question-and-answer session that follows. If you miss the live call, the replay is usually available on Apple’s website for about two weeks following the release.
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