22/03/2024
Apple Shares Wobble as Antitrust Suit Takes Aim at Growth Pillar
US, EU authorities target aspects of Appleās services unit
Investor says stock could be ādead moneyā after 11% YTD drop
For years, Apple Inc. investors have consoled themselves with the idea that no matter what trends look like for major product categories, growth in services would remain robust. Now, the outlook for that business is on shakier footing.
Its shares fell the most since August on Thursday, after the Justice Department filed a suit accusing Apple of violating antitrust laws and suppressing competition by blocking rivals from accessing hardware and software features on its popular devices.
The decline also brings Appleās year-to-date slide near 11%, erasing $337 billion from its market capitalization. The selloff stands in contrast to the rest of big tech, with the Bloomberg Magnificent 7 Index up about 17% this year. Apple was little changed on Friday.
āServices has been the driver of growth for Apple, with huge margins, and thereās a question of where the business goes from here,ā said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. āI hope they can limit the damage as much as possible, because we donāt see any new growth drivers on the horizon and the stock still looks expensive. It could be dead money for a while.ā
The suit brought by the US Justice Department on Thursday adds a level of risk to Appleās services business ā home to the App Store and Apple Music ā that is fed by the more than two billion Apple devices in use. Services revenue expanded 9% in fiscal 2023 while products revenue ā iPhones, Macs and iPads ā dropped 3%. Furthermore, despite only accounting for 22% of Appleās sales, services generated more than a third of profit.
The App Store is the biggest component of Appleās services business. Analysts expect it to generate about $5.8 billion in second-quarter revenue, according to data compiled by Bloomberg. Total revenue is expected to be $90.5 billion.
Regulatory issues are just the latest headache for investors, who are also grappling with weak sales in China, concerns that Apple is behind peers with artificial intelligence, and few obvious catalysts for growth. Bloomberg News recently reported that Apple canceled a long-term effort to build an electric car, and its Vision Pro headset isnāt expected to be a major contributor to revenue in the near-term.
Appleās second-quarter results, scheduled for release in May, are expected to show revenue down 4.5%. That would represent the fifth quarter with negative growth of the past six. The consensus for Appleās full-year revenue has dropped 2.1% over the past quarter.
