Apple Earnings: Here Are Five Things To Watch For

Apple (NASDAQ:AAPL) is a bundle of contradictions. At any given point, the balance of love and hate from both users as well as investors determines the company’s immediate perception. In the build-up to the March earnings report, Apple shares recently dropped below $400, a 16-month low for the company that was seeing peaks of just above $700 only a few months ago.

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It was sued by a shareholder who has, in the past, been quite a company cheerleader and has millions of dollars invested in it. Investors are desperate to see what the company will do next, but fears that it may not continue being magical pull at its image almost constantly.

In such a scenario, any earnings report from the company invariably becomes the center of the trading day. Here are five things to watch for as we all prepare for the day’s most anticipated earnings announcement:

1) Gross margins: Apple’s profit margins have always been standout, but more and more questions are being asked about their sustainability. Last year this quarter, Apple’s profit margins were at a never-before 47.4 percent. However, since then warnings about an unstoppable drop on its way have plagued the company’s stock. Apple already has a cheaper iPad, and is rumored to be working on a cheaper iPhone in an attempt to keep propping up sales numbers and market share. However, that comes at the cost of eroding margins. This number today will immediately signal how investors react…

2) iPhone Sales: Apple generated $22.7 billion from 35 million iPhones in the same quarter last year, but is anticipation for Samsung’s (SSNLF.PK) Galaxy S 4 and HTC’s One likely to eat into the pie this time around? It’s no secret that Apple’s once-standout smartphone is facing competition like never before. And with no iPhone upgrade in clear sight, buyers have not been shy to go for the new Google (NASDAQ:GOOG) Android-powered devices.

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3) iPad Sales: Is the iPad a has-been device? The machine that introduced the tablet phenomenon still holds strong in that market, but its dominance has undoubtedly been eroded by cheaper, newer alternatives. In the same quarter last year, Apple reported it had generated $6.6 billion on the sale of 11.8 million iPads. It will be also be worth seeing if the iPad mini has cut into the sales of the more profitable, larger version.

4) Guidance: With most predictions bordering on pessimistic, are March earnings already accounted for in the ongoing downward move of the stock? It’s likely. And in that scenario, where Apple thinks it’s going next will likely be the bigger thing to watch for investors. On last quarter’s earnings call, CFO Peter Oppenheimer had said the company was changing its approach to guidance in order to be more realistic for analysts who expect too much. It’ll be interesting to watch what that looks like.

5) Cash: For months on, investors have been staring Apple-ward in the hope of getting some hints on getting to share some more of the company’s growing cash pile. After the David Einhorn lawsuit just before the annual shareholders meeting in February, Apple said it was ready to return more to shareholders. However, no such solid news has arrived yet. Investors will be on the lookout again today.

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“If our estimates for this quarter and guidance are correct, and Apple does not announce that it is returning incremental cash on the call, we suspect Apple’s stock could come under further near-term pressure,” Bernstein Research’s Toni Sacconaghi wrote last week.

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