4 reasons Wall Street is souring on Apple
The world's biggest company has shrinking appeal for Wall Street.
Apple (AAPL) last week gave investors a quadruple dose of bad news in its latest quarterly results. The tech giant reported its first revenue decline in 13 years as sales of the iPhone, by far its most important product, also fell for the first time. Apple's sales and earnings fell short of Wall Street analysts' expectations, while its forecast for the current quarter also lagged projections.
Yet while some tech pundits and market watchers argue that Apple's best days are behind it, others say that notion amounts to a familiar -- and overplayed -- song. Piper Jaffrey analyst Gene Munster says investor sentiment turns against the company roughly every two years.
"Before the iPhone 6 came out, investors were calling for Tim Cook's job, and then the iPhone 6 was a hit," said Munster, who has a "buy" rating on Apple's stock, though he has lowered his price target to $153, from $172. "He was more or less CEO of the year.... The idea that you just can't keep the story going has been a consistent theme on the stock since 2006, when the iPod is peaking."
Let's take a closer look at what is ailing Apple.
1. Bad quarter: In an interview with CNBC's Jim Cramer, CEO Tim Cook noted that the company had an "incredible quarter by absolute standards." Indeed, Apple continues to mint money, posting net income of $10.5 billion, or $1.90 per share, on revenue of $50.6 billion. While most companies would be satisfied with these results, those figures represent double-digit declines from the year-earlier period, which is how publicly traded companies like Apple are judged.
2. iPhone sales: According to Angelo Zino of S&P Global Market Intelligence, Apple has earned more than $585 billion in sales from the iPhone since 2010, making it one of the most successful tech products in history. The iPhone 6, which was introduced in 2014, was the most successful version of the phone to date. While that was good news for Apple, demand has plummeted in recent quarters. The company shipped more than 51 million units in its latest quarter, a 16 percent decline year-over-year. Apple draws about 60 percent of its overall revenue from the iPhone. Neither Zino, who also rates Apple as a "buy," nor Munster is expecting blockbuster sales from the iPhone 7. But they do expect sales to pick up as users look to upgrade their phone.
3. Apple Watch: Though the company's watch was introduced in 2014 amid great hoopla, many investors have been underwhelmed by the device. According to Zino, the company has sold 13 million units, earning more than $6 billion. That's more than triple the revenues that rival Fitbit (FIT) earned over the same time period, though not enough make a material difference for Apple. But Munster sees better times ahead when the Apple Watch will be decoupled from the iPhone in 2017. "This is something that can be an enormous part of the story, accounting for 10/15/20 percent of revenue down the road," he said.
4. iPad and Macs: Demand for the iPad peaked in 2014 and has since plummeted. Bigger iPhones such as the iPhone 6 Plus are cannibalizing sales of tablet computers ,with deliveries in the latest quarter falling 19 percent. As for Macs, shipments dropped 12 percent in the latest quarter.