Tech Titans Pull Sector in Opposite Directions in Q4’16

Apple and Facebook will also be focus companies for the market during the week, as Apple is scheduled to report actual results Tuesday and Facebook is scheduled to report actual results on February 1.

Apple is projected to be the largest detractor to earnings growth for the S&P 500 Information Technology sector for Q4'16. The current mean EPS estimate for Apple for the calendar fourth quarter (fiscal first quarter for Apple), is $3.22, compared to year-ago actual EPS of $3.28. The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for the Information Technology sector is 7.1%. Excluding Apple, the blended earnings growth rate for the sector would improve to 12.6%.

On the other hand, Facebook is projected to be the largest contributor to earnings growth for the S&P 500 Information Technology sector for Q4'16. The current mean EPS estimate for Facebook for the calendar fourth quarter is $1.31, compared to year-ago actual EPS of $0.79. As previously noted, the blended earnings growth rate for the Information Technology sector is 7.1%. Excluding Facebook, the blended earnings growth rate for the sector would fall to 5.3%.

What's Behind the Numbers?

What is driving Apple’s negative contribution and Facebook’s positive contribution to earnings growth for the sector?

For Apple, the iPhone product segment has accounted for about 64% of the total revenues generated by the company over the past eight quarters on average. From Q4'14 through Q3'15, the iPhone product segment reported average year-over-year revenue growth of 52%. From Q4'15 through Q3'16, the iPhone product segment reported an average year-over-year revenue decline of 14%. For Q4'16, the iPhone product segment is projected to report year-over-year growth in sales of 2.5%.

For Facebook, mobile advertising sales have accounted for about 75% of the total revenues generated by the company over the past eight quarters on average. From Q4'14 – Q3'16, mobile advertising sales have reported year-over-year revenue growth of 80% on average. For Q4'16, mobile advertising revenues are projected to grow by 58%.