Apple, the tech giant known for its innovative products, has been facing a series of setbacks on Wall Street. Despite the anticipation surrounding the upcoming release of the iPhone 15, recent earnings reports have left investors feeling uncertain.
After surpassing analysts’ expectations and reporting earnings of $1.26 per share for the June quarter, Apple experienced a decline of 1% in sales compared to the previous year. This disappointing news was met with a negative response from investors, causing the stock to plummet below its $3 trillion market capitalization.
The downward trend continued as the stock experienced its largest single-day losses since September 29, dropping by 4.8% to a price of $181.99. Furthermore, this marked the first time in months that Apple shares closed below their 50-day moving average of $187.09.
Unfortunately, Monday brought no respite for Apple as its shares experienced an additional 2% drop, bringing them down to $178.52. This significant decline made Apple the poorest performer in the Dow Jones Industrial Average.
To outsiders, it may seem puzzling that a minor decrease in sales would have such a drastic effect on investor sentiment. Historically, Apple’s stock has provided an impressive annualized total return of 29% over the past decade, compared to 12% for the S&P 500 and 11% for the Dow.
However, loyal followers of Apple are aware that the company has been experiencing a decline in sales for three consecutive quarters. This is the first time since September 2016 that such a pattern has emerged. Additionally, within the latest earnings season, Apple was the only major player in the industry to report a decrease in revenue between consecutive quarters.
Looking ahead, Apple expects its performance to remain relatively unchanged in the current September quarter, barring any substantial shifts in the overall economic landscape. The main issue lies in the fact that fewer customers are showing a willingness to purchase the latest Apple products. During an earnings conference call, management acknowledged the decline of the U.S. smartphone market over the past few quarters and highlighted a 2.4% decrease in iPhone sales for the June quarter. Moreover, revenue from iPad and Mac sales experienced significant drops of approximately 20% and 7%, respectively, compared to the previous year.
Ultimately, Apple’s recent struggles on Wall Street serve as a reminder that no company is immune to market fluctuations. As the smartphone market evolves and consumer preferences change, Apple will need to adapt to ensure continued success in the highly competitive tech industry.
Apple’s Growth Opportunities and Challenges
Apple is currently experiencing a slowdown phase, as highlighted in their recent report. According to Rosenblatt Securities analyst Barton Crockett, this situation has led to a downgrade of Apple’s stock to Neutral from Buy, while maintaining a $198 price target.
Microsoft can relate to Apple’s struggles, as their product sales also fell by 6.1% in the latest quarter. However, they managed to compensate for this loss with a 16% growth in their services compared to a year ago. Apple, on the other hand, saw 8.2% growth in their services.
Apple now faces increasing pressure to continue bolstering their services. However, the real challenge lies in delivering strong iPhone sales in the upcoming quarters, especially given concerns surrounding the slowdown of the smartphone market, particularly in developed regions.
UBS analyst David Vogt predicts that 49 million iPhone units will be sold in the current quarter, matching the numbers from a year ago. Apple’s management expects a performance improvement in the September quarter compared to the previous year.
The release of the iPhone 15 on September 22 presents a significant opportunity for Apple. Bloomberg reported on this anticipated release, making the holiday quarter (ending December 31) an important timeframe to monitor. However, Apple did not respond to requests for confirmation of this date.
While Apple may face an easy comparison with the same period in 2022 due to supply chain disruptions, the December quarter may pose challenges due to fluctuating exchange rates in India and other major foreign markets. Recent currency movements have negatively affected Apple’s overseas revenue.
Apart from weak iPhone sales, investors are also concerned about the expensive stock valuation. Currently trading at 28 times its next 12 months earnings, Apple’s stock is higher than its five-year average price-to-earnings ratio of 23.2 and significantly higher than its lowest price-to-earnings ratio of 10.8.
It is now up to Apple to convince investors to invest in their stock.