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Apple Pre-Earnings: Could iPad or Wearables Steal The Show?

The Apple Maven continues to preview the Cupertino company’s earnings day. Could the iPad or the wearables segments stand out this time?

As Apple’s earnings day approaches, the Apple Maven continues to review the hot topics that are likely to take center stage. So far, I have explained how the iPhone and the Mac may still do very well despite tough comps, while services are likely to boost total company margins.

Today, I face off two segments that often fly under investors’ radar: (1) iPad and (2) the diversified wearables, home and accessories business. Could either be important at driving revenue growth and investor sentiment this quarter?

Figure 1: Apple Pre-Earnings: Could iPad or Wearables Steal The Show?

Figure 1: Apple Pre-Earnings: Could iPad or Wearables Steal The Show?

(Read more from the Apple Maven: Apple Pre-Earnings: The iPhone Should Be A Killer in Q2)

iPad and wearables: past growth

Some investors think of the iPad as a key business in Apple’s portfolio — it certainly was in the early 2010s. I will not argue against the notion, but I believe that wearables, home and accessories deserve at least as much attention.

Since the start of fiscal 2019, growth in the wearables and home segment reached a quarterly average of 29%. By contrast, iPhone growth was a much more timid 8%. Even services only managed to grow revenues during the period by 22%, on average.

Among the product categories, iPad has been one of the most successful at increasing revenues, second only to wearable and home: quarterly average of 19%. The peaks and valleys have been far apart, at +79% this time last year and -14% in the most recent quarter, suggesting “lumpiness” in sales. See graph below on the left.

Figure 2: iPad growth and wearables growth.

Figure 2: iPad growth and wearables growth.

Here’s something else that the charts above illustrate: both the iPad and wearables segments have been growing at an unimpressive rate in the past couple of periods. The likely culprit: supply chain disruptions that have prevented Apple from meeting demand.

Headwinds are still likely

I believe that the iPad, the Watch and even AirPods (whose sales have hiccupped over the past year or two) are great businesses for Apple. Wearable devices, in particular, could see a demand renaissance driven by the post-pandemic “return to normal”.

Still, I find it premature to place optimistic bets at this point for the following reasons:

  1. The global supply chains remain stressed;
  2. Demand from certain corners of the world, including China and Russia, is likely to be particularly soft in the face of economic growth deceleration and geopolitical tension;
  3. The iPad Pro is already nearly one year old, and the iPad Air was only launched in March 2022. For fiscal Q2, this gap in newness could impact sales;
  4. Sales of iPad and wearables are about the most unpredictable, as they fluctuate wildly from quarter to quarter.

Therefore, I am not expecting much from these two segments that account for nearly one-fifth of Apple’s total revenues. The iPad, in fact, will be facing very tough 2021 comps. The YOY change is even likely to be negative — maybe the only reportable product category to experience lack of growth this time.

At the end of the day, I believe that the iPhone, Mac and services could deliver results above expectations. iPad and wearables are, at best, the wild cards in the quarter.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Apple Maven)