Huge Announcements From Apple, Twitter, and eBay
Apple Inc. (NASDAQ:AAPL), Twitter Inc (NYSE:TWTR), and eBay Inc (NASDAQ:EBAY) will keep investors busy this evening as all three companies are set to release their earnings report after the bell today. Will their stock prices soar or plummet? Let’s take a look at the earnings estimates to find out what analysts are expecting.
Apple’s incredible growth streak is about come to an end today. For the first time since 2003, Apple is expected to report a quarterly decline in revenue, falling 10% to about $52.0 billion over the same period last year. So not only will sales fall, but they are expected to fall big.
But this is already priced into AAPL stock, as the sales drop was expected. Apple warned investors in January that sales would decline. Since the start of the year, AAPL stock has basically remained unchanged.
So what is going on with Apple that is causing sales to shrink?
Apple’s been riding a hot hand with the “iPhone” all these years, but it looks like that is ending, as the overall smartphone market is beginning to cool down. And that is bad news for Apple since the majority of its sales (68%) come from the iPhone. (Source: “Q1 2016 Unaudited Summary Data,” Apple Inc., January 26, 2016.)
Analysts are expecting iPhone shipments of around 50 million to 52 million, which would be down from 61 million a year ago.
The problem for Apple is that the iPhone has become so ubiquitous that there really is no need for customers to upgrade their handsets. The “iPhone 6” is in the second year of its product cycle and other than a few features like “Force Touch,” there wasn’t enough to entice customers to ditch their iPhone 6 for the “iPhone 6s” over the past year.
But that could change later this year, as Apple is expected to release the “iPhone 7.” Rumor has it that the new phone will have an old screen, dual camera, upgraded processor, and touch sensitive home button. That could be enough to spark iPhone sales again.
So the main catalyst for AAPL stock tonight will be the iPhone. The question is this: how hard will sales fall? If iPhone sales manage to come in above expectations, AAPL stock could get a boost.
Investors are hoping to see tonight if Twitter can reverse a number of disappointing earnings results. Investors have pummeled TWTR stock over the past year, which is down 66% in that time.
Analysts are expecting Twitter to report revenue of $608 million, up 39.4% from a year ago. On the earnings front, earnings per share are expected to coming in at $0.10, which is up 43% from the same quarter in 2015. The numbers sound impressive, but keep in mind that growth is slowing at the company and investors don’t like to hear those words.
But above all else, investors will be focused on user growth, which has been declining sequentially for several quarters. Twitter has been unable to budge past 320 million monthly active users (MAUs) for two straight quarters now.
In addition to user growth, analysts will have an eye on user engagement levels, which is an area of concern. According to Morgan Stanley, Twitter users spend 2.7 minutes on average using the app per day. (Source: “Twitter Failure To Engage Mass Market Sparks Price-Target Cut,” Investor’s Business Daily, April 7, 2016.) In comparison, Facebook Inc (NASDAQ:FB) users spend about half an hour using its app every day. That’s a major problem for Twitter, because the less time a user spends on the site, the fewer adds they will see, which will result in lower advertising revenue.
Investors will be looking tonight to see how management is driving those numbers. If user growth manages to show signs of life again, TWTR stock could rise.
Not much is expected from eBay these days, as most analysts don’t seem to believe that the company has enough growth catalysts these days. EBAY stock has fallen about seven percent in the last three months, while the S&P 500 gained 11%.
The focus for tonight’s earnings report will be on user growth and user activity levels. At the end of 2015, eBay had 162 million active users. That’s up about five percent from the previous year. Investors will also have their eyes on total gross merchandise volume, which increased last year by only five percent on a constant currency basis.
Those numbers are important because that is what drives sales growth at eBay, which has been sluggish for quite some time now. For the first quarter of 2016, eBay is forecasting sales to be in the range of $2.05 billion to $2.10 billion, up about three percent to five percent from a year ago.
In comparison, rival Amazon.com, Inc. (NASDAQ:AMZN) is demolishing eBay. Sales at the e-commerce giant in the fourth quarter of 2015 were $35.7 billion, which was up 22% from the year-ago period.
Investors will be pleased to learn tonight if those key focus numbers come in higher than expected.