Despite the major crash and quick rebound for Apple (AAPL) shares surrounding iPhone weakness in late 2018, the stock is pretty much flat during the last three months as the chart below shows, trailing the Nasdaq’s gain over that time. While investors are looking for brighter skies in the near term, we don’t have any major progress on some key fronts. Without a much-needed catalyst, that could mean shares will continue to tread water until something breaks us out of this range.
(Source: Yahoo Finance)
The biggest issue for Apple currently in my opinion remains the ongoing China trade war. While it was nice to see a postponement of tariffs that could have started at the beginning of this month, no major trade deal has been struck just yet. As a result, China is now guiding to its slowest economic growth in decades, a range of 6 to 6.5%. The longer this situation drags on, it keeps a major cloud over Apple’s second-largest market.
Another issue seems to be some increased worry over Apple’s streaming service that’s expected to be unveiled later this month. Reports suggest that Apple management is getting too involved in content creation, which not only is leading to production delays but may be hampering content creators’ visions. There still seems to be a wide range of guesses as to what this streaming service may actually include, and the possibility that it may not officially go on sale until later this year.
Since investors are looking for Apple services to be the growth leader in the coming years, the company cannot afford to strike out on this package that has been in the pipeline for years. If Apple thinks it can throw a few shows together and bundle it with some mid-tier channels at a sky-high price point, the service could be dead even before it arrives. Just take a look at the HomePod, a device whose functionality was very limited yet went for a typical Apple premium price. With many content services already on the market, management may need to sacrifice margins in the near term to build a meaningful subscriber base early on. That means a competitive price point.
It also will be interesting to see what new product or products are possibly launched this month. In recent years, Apple launched its low-cost iPad in late March aimed at the education sector. There’s the potential that the iPad mini gets refreshed too since it hasn’t gotten a major overhaul since 2015. A new version of AirPods also is expected at some point this year, with some thinking they could come this month. February also marked the one-year anniversary of the release of the HomePod, so that creates a small revenue comparison headwind if a second-generation device is not launched.
I bring up new products, China and the streaming service because they all tie in to current expectations. As you can see in the graphic below, analysts are currently looking for the revenue decline to narrow significantly in percentage terms from the current fiscal Q2 to the June Q3 period. That improvement comes from hopes that iPhone sales are improving and the China situation works itself out, but also that new products to market contribute a bit.
(Source: Yahoo Finance analyst estimates page)
With everything that’s gone on regarding Apple in the past couple of months, you may be surprised to learn that shares are basically flat over the last quarter of a year. There has been a nice rebound off the early January low, but shares still remain well off their all-time highs. This is likely a function of no major progress on the China trade situation just yet, combined with a little consternation over Apple’s streaming service. Until we get more clarity on trade, or perhaps some new products that excite, I don’t see a reason why Apple shares will move meaningfully in either direction.
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