What To Expect From Apple's Holiday Quarter (And Yearly Outlook)

Earnings expectations for Apple Inc. AAPL's holiday quarter continue to climb higher as we approach the moment of truth on the evening of January 27. Since Apple unveiled the iPhone 6 and Apple Pay back in September estimates for the fourth quarter of the calendar year have gone nowhere but up.

The current consensus estimate for Apple's holiday quarter rests 5 percent higher than where it sat 3 months ago on Estimize. Contributing analysts have raised their aggregate earnings estimate from $2.46 in mid September to $2.58 two weeks prior to the upcoming report.

Revenue expectations have also continued to gain momentum. Throughout the period revenue projections rose 4 percent from $64.719 billion to a towering $67.153 billion.

The launch of the iPhone 6 will have the largest impact on Apple's quarter by far. Early reports suggest that Apple will ship a record number of phones and the average selling price (ASP) is expected to rise too as consumers opt for phones with greater memory capacity. On top of simply being more expensive, the higher end phones are believed to sell at greater margins too, which should pump the company's bottom line.

A secondary factor which could boost profitability this quarter is Apple's new mobile payments system, Apple Pay. Apple is reportedly only taking a very small cut of total transaction volume as profit. This means that we won't see a large shock to Apple's income statement, but Apple Pay comes with its own set of advantages.

Like Apple's revenue from iTunes and the App Store, Apple Pay helps to insulate the company from its own product hardware cycle. Getting users on Apple Pay isn't like getting shoppers to buy a new smartphone once every 2 years. Once users adopt Apple Pay they will continuously use the service until a better payments platform comes along.

One of the most attractive aspects of Apple Pay is that it offers recurring revenue around the year. Another perk is that Apple Pay takes the company into a completely new product category. Apple has no competing payments platforms and Apple Pay will broaden the company's ecosystem to include online shopping transactions in addition to mobile payments.

According to the Estimize consensus the iPhone 6 and iPhone 6 Plus are projected to boost Apple's holiday quarter profits 25 percent higher than they were last year on top of 17 percent revenue growth. In 2015 Apple did 32 percent of its total earnings per share in the holiday quarter, this year that mix is expected to go unchanged.

If the proportion of holiday quarter sales aren't elevated by the launch of the new iPhone models that would likely reflect either limited iPhone supply or enduring strength throughout the remainder of the year driven by Apple Pay and the Apple Watch.

While this looks like it should be a great quarter for the company, Apple's yearly outlook may be even brighter. The big wildcard for 2015 is the Apple Watch, the highly anticipated smart-watch which many expect to revolutionize wearable technology.

Initial Apple Watch estimates from the sell side are all over the place. Some believe the Apple Watch will be the greatest product introduction in the company's history. Others are concerned that the device may not offer enough novel functionality to justify its $349 starting price tag.

Crowdsourced data on Estimize projects that Apple's earnings will increase 24% in 2015. That would be a massive year for a company with a market cap of over $600 billion doing over $200 billion in annual sales. Even though Apple stock has cooled off a bit since December, the market's expectations for 2015 are still growing and they have plenty of time to continue evolving. 

(Photo Credit: Kārlis Dambrāns)

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