Normally, around a 6.5% percent drop in a stock price is somewhat significant but probably wouldn’t be considered a huge deal. But it’s a different story for Apple, where a 6 percent drop erases tens of billions of dollars in value.
That’s exactly what happened during trading today following the company’s earnings report last night, which signaled the company’s first potential sales decline in recent memory coming next quarter. That wasn’t the only issue the company faced: Its iPhone sales hardly grew from the same quarter last year, and it got walloped by issues with foreign exchange rates.
All this taken together is more evidence that Apple — the iPhone monster growth machine — may see its engine starting to sputter. Global economic issues aren’t helping and the market in general has seen a bit of a bad run, but a drop of this magnitude in a bellwether like Apple remains a significant event.
All engines, for the most part, hit a slowing point — and that requires looking for new lines of business. And it seems now that Apple is not that immune to those as it feels the weight of downward pressure due to things like softness in China and Hong Kong.
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Apple’s woes started last night on the earnings call, where it first had to spend the initial minutes of the call explaining the impact of unfavorable foreign exchange rates on the company’s top line.
In sum, that led to a $5 billion difference in revenue, and the difference between a beat and a whiff when compared to analyst expectations. That was likely baked into expectations, but it’s still a lot of ground lost to forces that Apple can’t necessarily control. The company’s stock hasn’t had that great of a year, either.
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There’s another factor playing into the potential swing south for the next quarter: CEO Tim Cook said that Q2 last year included some spill-over demand from Q1, which led to a stronger quarter than what the company is expecting in Q2 this year.
It’s still predicting revenue somewhere between $50 billion and $53 billion, but last year recorded $58 billion in revenue. Still, there are a lot of macroeconomic trends weighing on Apple that are putting some pressure on the upcoming quarter, Cook said.
“We’re in an environment now that is dramatically different from a macroeconomic point of view than last Q2, from a currency point of view, from the levels at which we’ve had to adjust pricing in several of these markets and sort of the overall malaise in virtually every country in the world,” Cook said. “And so it’s really all of those factors that play in there, and it’s difficult to sort out how much is due to which one.”
Apple is certainly trying to ensure itself against losing out on its growth engines. With the iPhone growth starting to stall and iPad and Mac sales dropping off, it’s launched a couple new products — like the Apple TV and the Apple Watch — that appear to be seeing some growth as represented in the company’s last earnings report. It’s also making a big push to show that its services revenue will, at least in the future, be significant as it looks to monetize its existing iPhone base.
Apple has done a lot to try to appease investors in the form of things like dividend payouts. And there is still a lot of opportunity for Apple. CEO Tim Cook was optimistic about people switching from Android, and there are more growth markets that he singled out like India on the call. But so far, it seems investors aren’t happy with the results — and that means Apple is going to, at least in the short term, find some way to figure out how to reverse its stock decline.