More than $200 billion in Apple’s market value has evaporated since Thursday. Here’s what happens

More than $200 billion in Apple's market value has evaporated since Thursday.  Here's what happens

shares apple They extended their slide after Monday’s earnings, dropping 1.7% despite a rebound in the broader market. The tech giant has now lost more than $200 billion in market value in less than a week, the worst five-day session since November 2022.

On the one hand, the size of Apple makes even a small decline in its share price seem very significant in terms of market capitalization, but on the other hand, the recent decline was significant by historical standards. Here’s why the market is (relatively) freaked out by Apple.

Revenue decline

The turmoil began on Aug. 3 when Apple reported that its iPhone sales shrank well from Wall Street estimates for the June quarter, sending the company’s overall revenue down 1% year over year to $81.8 billion.

While Apple has grown services segment revenue in recent years — adding billions to its top line of App Store, iCloud services, as well as Apple Music, Apple TV+, and Apple Pay — iPhone sales still account for roughly 50% of all revenue. As a result of this reliance, falling iPhone sales prompted a flurry of analyst writedowns on Apple stock last week.

Rosenblatt analysts downgraded Apple stock to “neutral” from “buy,” arguing that the company is stuck in a “slowdown phase.” and Loop Capital analyst Ananda Baruah lowered Its rating is “Pending” from “Buy” as well, indicating that Apple’s current revenue guidance is at risk if iPhone sales don’t pick up over the course of the year.

It’s been a tough quarter for Apple’s hardware sales business overall. iPhone revenue fell 2.4% year over year to $39.7 billion, Mac revenue fell 7.3% to $6.8 billion, and iPad revenue fell 19.8% to $5.8 billion.

Orientation weakness

Another reason for the recent sell-off in Apple shares was weaker-than-expected guidance from management.

For the September quarter, Apple said it expects gross margins to be between 44% and 45%, with flat to slightly slower revenue growth year-over-year. And while revenue for the iPhone and Services segment may accelerate slightly, Apple CFO Luca Maestri said he expects Mac and iPad revenue to continue to decline throughout the year.

Wedbush tech analyst Dan Ives, a popular Apple bull, acknowledged in an August 3 note to clients that the guidance was “simple street light.” And American bank Analysts, in a similar post-earnings note, said the outlook showed Apple facing a “weak US smartphone market backdrop.”

Noble assessment

Apple rich evaluation It is the third major reason the stock is under pressure, according to analysts.

Despite declining revenue for three consecutive quarters, shares of Apple are up 51% year-to-date at their peak, sending its stock trading at as much as 33 times earnings. And even after the recent plunge in post-earnings stock prices, Apple still trades at roughly 30 times earnings. For comparison, the S&P 500 trades at roughly 20 times earnings per WSJ data.

Some analysts point to Apple’s cost-cutting measures and higher-margin services revenue as a reason to pay a premium for the stock, noting that total net income rose 2.3% to $19.9 billion in the June quarter and services revenue jumped 8% to a record high. A rise of $21.2 billion. But others argue that Apple remains overly dependent on declining iPhone sales in a difficult macroeconomic environment.

Still a winner in the long run?

Apple’s latest quarter was enough to spook investors, but the reaction from Wall Street analysts was divided, with several big names remaining optimistic about the tech giant’s long-term prospects despite recent headwinds.

While investors fear that falling iPhone sales are a sign of waning demand for Apple’s most important product, optimistic analysts point out that on a constant currency basis, iPhone segment revenue rose 1.4% year-over-year in the most recent quarter.

Dan Ives, a technology analyst at Wedbush, explained that iPhone revenue would have beat Street’s consensus forecast barring foreign exchange headwinds, and argued that strength in key overseas markets for the smartphone provides a runway for future growth.

For example, iPhone revenue in China rose 8% year-over-year in the second quarter, and management told investors on a post-earnings call that iPhone revenue in India hit a record, though they declined to disclose exact numbers.

Ives also believes that the launch of the iPhone 15 in September will create a “super micro-cycle” of demand for the product at a time when Apple continues to increase revenue in the services segment.

“We believe iPhones and services should be stronger than expected and remain the core of Cupertino’s growth story,” he wrote, reiterating its “outperformance” and $220 price target.

This view was echoed by Bank of America analyst Wamsey Mohan in a note dated August 3. Mohan said he believes revenue from Apple’s services business can continue to grow due to “improving trends in advertising, mobile gaming, and App Store sales.” It also highlighted the record number of “switchers” — consumers who chose to switch to an iPhone from another brand — in China in the second quarter, arguing that it could help offset the “weaker consumer spending environment” globally.

While most analysts remain optimistic about Apple’s long-term prospects, there are some who fear that there will be more pain in the near term due to the company’s high valuation and lower revenues.

UBS analyst David Vogt noted that despite “disappointing” hardware sales, Apple currently trades at a nearly 50% premium to the S&P 500. He said that although some of its peers are ignoring the decline in iPhone, Mac and iPad sales, As a “temporary” and referring to the potential for growth in the service sector, he is concerned about underlying demand.

“The risk of a challenging smartphone market especially in developed regions that must continue… is a headwind for the stock,” he wrote, reiterating its “neutral” rating and $190 12-month price target.

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