Apple's Shares Fall -3.6% Following Barclays Downgrade
2min read $AAPL(AAPL)
Apple Inc. (AAPL) has faced notable headwinds recently, with a decline in its market share in the global premium smartphone market, legal issues with Masimo (MASI) around its Apple watch, potential legal issues for Alphabet (GOOG) which could impact a key revenue stream, and a downgrade by Barclays due to cooling iPhone demand.
These factors have raised concerns among investors regarding Apples growth potential and investment value. In this article, we will delve into the indicators and themes impacting the stock, including the decline in market share, weakened demand for iPhones and other hardware categories, and the ongoing debate between bulls and bears.
Counterpoint Researchs Market Pulse Service indicates that Apples share in the global premium smartphone market dropped to 71% in 2023 from 75% in the previous year. This decline can be attributed to the resurgence of Huawei in China, primarily fueled by the success of their Mate 60 series.
Today, Barclays downgraded Apple to underweight, citing a lack of new features and a challenging backdrop that will impact iPhone upgrades. The concern extends to other hardware categories, including Macs, iPads, and wearables, which also show signs of a lack of bounce-back.
The market reacted to this news, causing Apples stock to experience a 3.1% drop to $186.50 and test its 50-day moving average (DMA) at $186.85. The weakness in iPhone volumes and mix, coupled with the observed market softness in developed regions, has further contributed to the downgrade.
The iPhone concerns add to potential headwinds around the Apple Watch. MASI accused Apple of hiring away employees and stealing its oximetry technology. The International Trade Committee (ITC) barred imports and sales of the watches as it delved into the complaints. Apple did win a pause in the ban at a U.S. Appeals Court but the final ruling remains uncertain.
While the bears focus on sustained underperformance and potential risks associated with Services, there are contrasting beliefs among the bulls. Notably, Gene Munster, founder of Loup Ventures, remains optimistic and believes that Apple will find a workaround that allows the sale of Apple Watch Series 9 and Ultra in the US before March 1st, 2024. Munster highlights Apples track record in navigating legal challenges and points out that Apple has not engaged in licensing discussions with Masimo, suggesting they already have a potential path forward.
Another worry for Apple investors is the revenue Google pays Apple for advertising revenue on Safari. GOOG pays AAPL 36% of its search advertising revenue from Safari under the terms of the two companies search default agreement. This revenue stream will come under scrutiny as Alphabet faces legal challenges from the Justice Department over its dominance in search and advertising markets.
Based on recent checks and issues facing AAPL, analysts have revised their estimates and outlook. They expect a reversion after a year in which most quarters were missed but the stock outperformed. Weakness in iPhone volumes, mix, and other hardware categories persist, particularly in developed markets. Although there is some strength in emerging markets, it is not sufficient to offset the broader weaknesses.
March quarter estimates are lowered below consensus, with expectations of a year-over-year revenue decline following a flat December quarter and four consecutive quarters of decline. Additionally, there are concerns about the deceleration of Services growth, with expectations of a decline to low single-digit growth by the September 2024 quarter.
Collectively, the issues facing the company have created a significant headwind which has seen the stock pullback 8% over the past three weeks. The stock closed today at $185.48, its lowest level since November 11. It closed below its 50-day moving average for the first time since November 3. The weakness will garner interest from long time Apple bulls who may view this decline as a buying opportunity as the stock trades at approximately 26x forward earnings.
Apples growth potential and investment value face challenges, including a decline in market share, cooling iPhone demand, and weaknesses in other hardware categories. While the bears emphasize sustained underperformance and forthcoming Services risks, some bulls maintain an optimistic outlook.