Apple Inc. (NASDAQ:AAPL), creator of mobile communication devices such as the iPhone, iPad, as well as personal computers, is set to report fiscal Q2 ’17 earnings on Tuesday, May 2, after the close. Wall Street is expecting it to report an EPS of $2.01 on $52.6 billion in revenue.

Apple AAPL earnings

1. Market Share: Up in the US; Down in China

The latest numbers available from the Kantar World Panel show two opposing trends for Apple’s Inc. (AAPL) market share—it’s heading one way in the US, moving in the opposite direction in China.

In the US, AAPL has maintained a +40% market share over the past five months, a feat not achieved by the company since July of 2013. Its exact market share in the three months that ended in February is 42%, higher than the 38.3% estimated for February 2016. This 3.7% increase in market share, coupled with a 3% decline in Android’s (NASDAQ:GOOGL) market share in the US over the same period (from 59% to 56%), makes us wonder how big of a part Samsung’s (KS:005930) Note 7, exploding battery fiasco played in AAPL’s newfound US market strength.

The numbers in China, however, paint a far less positive picture for Apple. iOS’s market share in China for the past three months is estimated at 13.2%, quite a decline from last year’s 22.2%. Android seems to be the main beneficiary here; its market share in China rose from 76% to 86%.

Apple’s Inc. (AAPL) decline in China appears to be fueled by the rise of smaller manufacturers like OPPO, Gionee, and Vivo, which together with Huawei have seen their sales figures more than double over the course of 2016. Most of the growth is for lower-end devices sold in rural areas, but there’s little doubt these companies will be aiming for the higher tier market sooner rather than later.

Which means there is indeed some cause for worry, but we’re not raising the alarm on this one just yet.

2. The All-Important iPhone 8 Release

The launch of the iPhone 8 and the number of devices shipped afterward are, without doubt, one of the most anticipated events for consumers and investors in the company’s recent history. Planned for September/October 2017, the iPhone 8 will mark the mobile phone’s tenth anniversary. It’s almost unbelievable how quickly mobile technology has grown in sophistication and capability over the past ten years. We’re bullish on the iPhone 8 for three reasons: Apple’s Inc. (AAPL) ecosystem stickiness, the expected upgradability of the device, and teenage fondness of Apple devices.

Regarding Apple’s Inc. (AAPL) ecosystem stickiness: Apple ‘locks’ in its users by offering a complete ecosystem of hardware and software, making it more difficult to switch to the competition once you’ve built your array of iOS apps and services. That has always been one of Apple’s strongest selling points. Everything is integrated, and often, once you’re in it’s a lot more comfortable simply to stay.

Secondly, the anticipation and intention to upgrade to an iPhone 8 could be quite significant for a large base of customers. Apple’s Inc. (AAPL) latest report analysis by CIRP suggests that about 45% of the iPhones currently used are two years old, or older. The release of the iPhone 6 and 6 plus has been one of Apple’s most successful releases of the last few years, and the iPhone 8 is expected to be the next device these owners will covet.

Lastly, according to a recent survey by research firm PiperJaffray, 76% of the 5500 U.S teens surveyed, reported owning an iPhone, and 81% of teens surveyed say their next phone will be an iPhone. These numbers seem very high, particularly considering Apple’s Inc. (AAPL) market share is estimated at 42% across the general population. However, even if the numbers are wrong by quite a lot – it still appears that the percentage of iPhone ownership among teens is high. With brand loyalty important within the smartphone industry, and taking into account that teenagers are more likely to push for an upgrade (whether because they have a strong interest in technology or simply because of peer pressure), this bodes well for Apple and its soon-to-be-released iPhone 8.

3. Macs, iPad, Services

The iPad is dead, for now. Years of declining revenues accentuated by an extremely weak holiday quarter (-22%) are making us wonder where the bottom might be for the iPad. It’s now AAPL’s smallest segment, after being its second biggest only two years ago.

Last quarter, AAPL basically sold the same number of Macs as it did for the same quarter a year ago. Revenue for this segment grew by 7% because of higher prices and the new MacBook Pro, released during the quarter. Revenue from Macs declined 10% last year, so Apple starts the year on a bit better footing. This year could prove to be pivotal for Apple’s computer business, for better or worse.

Services are Apple’s next big opportunity. The smartphone maker already has tens of millions of users, many of whom are very open to Apple providing them with services such as Apple Music. Revenue from the App Store increased as well, and we expect revenue from this software oriented segment (+18% YoY) will increase and make up for the lack of substantial growth in the company’s two hardware segments – iPads and Macs.

We like Apple, but not at this price

All in all, we’re cautiously bullish on AAPL and the iPhone 8. However, this does not mean that we like Apple’s current pricing, $143 per share. In addition, we actually think that there is currently about 10% of potential downside, to the $130 area, for one reason – Apple’s numbers are just not there yet.

A quick recap of the last couple of years: April 2015, AAPL  trades for $130, a new all-time high. Apple’s revenue and EPS growth start showing weakness in September 2015, stagnate in December 2015, and turn negative for the first three quarters of 2016. Apple’s share price drops to the low $90s during that period. Apple then proceeds to return to levels of $110 in Q3 2016, and returns to revenue and EPS growth in its last report—which, together with the election rally after November 8, brought the share price to today’s $143.

We believe this rally has gone too far. Apple’s Inc. (AAPL) TTM revenue as of last quarter is still 7.5% below last year’s levels. Its EPS TTM is 11% lower than it was a year ago. Its TTM cash flow—while enormous at $52 billion—is almost 25% lower than the $69 billion figure for the comparable period last year. In addition, while most metrics recovered in the last report, Apple’s operating margin dropped to its lowest level since June 2009, 27%.

Though none of the numbers mentioned above are horrifying, or even frightening, the current trajectory points lower, for now. Although we’re bullish long-term on Apple Inc. (AAPL), we would set an entry point closer to the $130 price range, where it was two years ago before growth concerns began to emerge.

By Clement Thibault, Investing.com