Apple's iPhone anticipated to boost sales, but App Store under regulatory risk

Strong sales of 5G iPhones and services like the App Store and Apple Music are anticipated to fuel growth at Apple Inc, which announces earnings on Tuesday, but some investors will be paying attention to the company's anti-trust strategy, Reuters reported.

The services industry is facing litigation, regulatory scrutiny, particularly from an emboldened US Department of Justice, and a slew of proposed legislation in the US and Europe to reduce app commissions and make other reforms.

According to Refinitiv IBES data as of July 26, analysts anticipate Apple's services sales to increase 24.1 percent to $16.33 billion, accounting for more than a fifth of the company's entire sales of $73.30 billion.

According to Angelo Zino of CFRA Research, Apple also faces the risk that the US Department of Justice may prohibit Alphabet Inc's Google from paying to be the default search engine on the iPhone. According to Justice Department sources, Google pays Apple $8 billion to $12 billion every year.

For the time being, analysts anticipate a surge in iPhone sales in the company's fiscal third quarter, with sales increasing 28.7 percent to $34 billion, according to Refinitiv data as of July 26, by far the largest single contributor to sales.

In a report last week, J.P. Morgan’s analyst Samik Chatterjee stated that the expansion of Apple's services sector has resulted in a structural shift toward a higher value for the company, with shares trading at 30 times earnings.

As recently as 2019, shares were routinely trading at less than 20 times earnings, as investors remained wary of the company's heavy reliance on iPhone sales.

Source: Reuters