Decrease in Apple's decade-long earning growth reported
Apple's share price currently stands at $406.13, a significant drop from its October 2021 high of $659.39. The tech giant's stock price has declined despite a 11% sales growth in the most recent financial quarter.
According to Apple CFO Peter Oppenheimer, the iPad Mini's margins are significantly below the corporate average. This, coupled with an 18% year-on-year drop in net income, suggests rising costs or lower profitability despite higher sales.
During a conference call with investment analysts, Oppenheimer made this statement. Jan Dawson, chief telecoms analyst at Ovum, suggested that Apple's success has led investors to expect constant sales and margin growth. However, Dawson argued that expecting revenues and margins to continue to grow is unrealistic.
Slower growth or contraction in Apple's services segment, such as the App Store, iCloud, and Apple Music, weakens recurring revenue streams. Inflation impacts consumer spending, potentially affecting premium product demand. Competitive pressures in key markets like China reduce growth prospects and increase risk. Tariffs and geopolitical uncertainty add to operational and cost challenges.
CEO Tim Cook expressed frustration about the decline in Apple's stock price over the last couple of quarters. Despite the stock price decline, Cook stated that Apple remains very strong. Cook acknowledged that Apple's growth rate has slowed and margins have decreased from the exceptionally high level experienced in 2012.
Sales for the quarter grew by 11% to $43.6 billion, exceeding the forecast by $600 million. Customers opted for lower-margin products such as the iPad Mini during the quarter.
Dawson claimed that Apple's promise to provide more realistic guidance was undermined by beating it this quarter. Beating guidance is a positive thing in its own right, but Dawson believes it is likely to lead to continued overheated estimates from analysts, which is not in Apple's longer-term interest.
Cook attributed last year's success to high growth and demand for products, growth in channel inventories, a richer mix of higher gross margin products, a more favorable foreign currency environment, and historically low costs. However, these factors seem to have lost their momentum, leading to the current stock market reaction.
[1] Apple's net income for the most recent financial quarter decreased by 18% year-on-year to $9.5 billion.
[2] Dawson suggested that beating guidance was the worst thing Apple could have done after promising to provide more realistic guidance and aim to hit rather than beat it.
[3] Customers opted for lower-margin products such as the iPad Mini during the quarter.
[4] The share price represents a 38.4% decline from $659.39 on 1 October last year.
- The decrease in Apple's net income for the most recent financial quarter to $9.5 billion indicates possible challenges in the finance sector, affecting the business outlook.
- Dawson believes that Apple's repeated practice of beating its own guidance on sales and income could lead to inflated analyst expectations in the technology industry.
