Despite a recovery in the overall market, Apple’s shares extended their post-earnings decline on Monday, sliding 1.7%. The internet giant has already experienced its worst five-day period since November 2022 after losing more than $200 billion in market cap in less than a week.
Apple Faces Longest Sales Drop in Decades as iPhone Slumps (Source: Yahoo! Finance)
Decreasing Sales Revenue
From the article released by Yahoo! Finance, due to Apple’s scale, even a modest decrease in its share price appears to have a huge impact on the company’s market capitalization; nonetheless, the most recent decline has been considerable by historical standards. Here’s why Apple’s stock price was so relatively scared by the market. The turmoil started on August 3 when Apple revealed that its iPhone sales for the June quarter had decreased far short of Wall Street’s expectations, causing the company’s overall revenues to decline 1% year over year to $81.8 billion.
However, Apple’s services segment revenues have increased recently, contributing billions to the company’s top line from the App Store, iCloud services, as well as Apple Music, Apple TV+, and Apple Pay, although sales of iPhones still make up around half of the overall income. Because of this reliance, a wave of analyst downgrades for Apple’s stock occurred last week as a result of the decline in iPhone sales.
Ananda Baruah of Loop Capital lowered his rating to “hold” from “buy,” arguing that Apple’s current revenue guidance is at risk if iPhone sales don’t increase throughout the year, and Rosenblatt analysts downgraded Apple’s shares to “neutral” from “buy,” contending that the company is stuck in a “slowdown phase.” Overall, Apple’s hardware sales business had a difficult quarter. iPad sales plunged 19.8% to $5.8 billion, Mac sales down 7.3% to $6.8 billion, while iPhone sales dropped 2.4% year over year to $39.7 billion.
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Weak Management Direction Leads to a Decrease in Revenue
Weaker-than-expected management guidance was another factor contributing to the recent decline in the price of Apple stock. Apple stated that it anticipates gross profit margins for the September quarter to range between 44% and 45%, with flat to slightly slower revenue growth year over year. Additionally, Apple CFO Luca Maestri stated that he anticipates revenue for the Mac and iPad to continue declining throughout the year, even though iPhone and services sector revenue may marginally accelerate.
Wedbush tech analyst Dan Ives, a well-known proponent of Apple, acknowledged in a note to clients on August 3 that the guidance was “a tad light of the Street.” Bank of America analysts stated in a similar post-earnings note that the outlook revealed Apple is dealing with a “backdrop of a weak U.S. smartphone market.” Analysts cite Apple’s high valuation as the third major factor putting pressure on the stock.
Shares of Apple were up 51% year-to-date at their peak despite three quarters in a row of decreasing revenue, which caused its shares to trade as high as 33 times profits. And Apple still trades at almost 30 times profits, despite the recent post-earnings stock price decline. According to WSJ data, the S&P 500 trades at about 20 times earnings as a reference.
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