The trillion-dollar smartphone company is preparing to release its earnings today, October 30th, after the bell. Apple AAPL has outperformed its cohorts in FAANG so far this year with returns north of 56%. This is almost counterintuitive as Apple has seen declining sales, a trend that is expected to continue in its September quarter (fiscal Q4) report.

AAPL has had more upside moves over the past 2 years of quarterly reports than down, with only 2 quarters illustrating a post-earnings slide. The average share price impact over the last 8 quarters is 4.5%.

Zacks Consensus estimates display an EPS of $2.84 on sales of $62.45 billion, representing marginal year-over-year declines in both metrics. Apple has beaten top and bottom-line estimates every quarter for over 3 years, so I would expect this trend to continue in tonight’s report.

Apple and Microsoft MSFT have been passing the hyperbolic crown as the world’s most valuable company since the end of 2018. AAPL just retook the throne in mid-October following the company’s announcement of its upcoming subscription services for gaming and streaming.

AAPL is not cheap right now, with shares trading at their highest forward P/E valuation since 2010. The sentiment in the market towards the US-China trade war is turning positive, and the considerably exposed AAPL has been reaping the benefits. If negotiations turn south, so will these shares.

Subscriptions Platforms

Apple will be entering the streaming battle at the end of the week with Apple TV+. This streaming service will be hitting the markets at the lowest price point to entice consumers as it builds its library of original content.

This market is extremely competitive and becoming saturated with every media company and its subsidiary trying its hand at streaming. It will be years before Apple will be able to turn a profit on this segment (if they ever do), but fortunately, it has 10s of billions to burn on original content. Netflix NFLX, the pioneer of this industry, is still hemorrhaging billions of annual free-cash-flow to keep up with the original content demands.

Apple also released a subscription-based gaming platform for its devices. This is the first mobile gaming subscription on the market and could have some sizable potential if these games are in demand.

The Rest Of the Business

Apple has seen a falling top and bottom-line as the smartphone industry matures. The company has illustrated a decline in its core product, the iPhone, which still constitutes over 50% of its 2019 sales. The firm has, on the other hand, expanded in its other product categories like wearables: Apple Watch and AirPods.

The company is beginning to broaden its portfolio of products and services to hedge against the cyclical and maturing smartphone industry.

Even with its expanding portfolio, the company is far from giving up on the device that brought them to power. Apple is doubling down on its next 5G iPhone. The firm just purchased Intel’s INTC smartphone modem business earlier this year and has been acquiring other assets to ensure its development and production of 5G is done in-house.

The 5G iPhone is expected to hit the markets in the fall of next year. 5G could be the push Apple need to get consumers lining up outside its stores again and propel its core product back into active growth.

Tonight’s report will provide some early color on iPhone 11 sales as it will have recorded its first 10 days of sales. I don’t anticipate any extensive sales growth with this new model, considering the advances made were exceptionally marginal. Apple knows that many of its consumers are going to wait for the 5G, and I expect them to pull out all the stops in its iPhone released next fall.

Take Away

Apple is the most valuable company in the world and will remain as long as it continues to drive top-notch innovations in its products and services. This company has a remarkable amount of financial flexibility, with roughly $50 billion in free-cash-flow secured every year and a pile of cash that seems to be unending.

Expect Apple to beat on both top and bottom-line metrics in this evening’s quarterly report. Look for color on the initial iPhone 11 sales and their outlook as well as guidance on the firm’s subscription services. Also, keep your eyes open for any further discussion about the US-China trade conflict, as this could have a sizable impact on AAPL.

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