Apple is preparing to close a challenging 2022 both in terms of the stock market and commercial performance. The Cupertino group operates in a highly competitive space on a global level, where marketing strategy and product promotion have often been the winning weapons. It can be read in the report by Sandeep Rao, Head of Research di Leverage Sharesthat Apple needs to be cautious in light of the trend in net sales and dominant product types.
Looking at Apple’s financial statements, Rao highlights two main elements. The first, the American market is the main revenue driver, while all of Asia (i.e. China, Japan and the rest of the Asia-Pacific region) does not even come close. This makes Apple an “American” story. Secondly, we read in the report, outside the iPhone, nno other product has the same relevance as a revenue engine. This makes Apple a company more of “smartphones” than other products.
From the point of view of the trend in turnover, some signs of a slowdown are beginning to be seen. All of Asia (especially China), which was the engine of explosive revenue growth in fiscal year 2021, now shows an increasingly worrying decline in revenues in the current year. Europe, too, reads the report, tends to decline and the Americas are the only region that recorded a more contained decline than in the previous quarter.
Criticalities on leading products
The trend of iPhone e Macthe two products they traditionally represented nearly 60-65% of all company revenuessaw a significant decline, writes Rao, while other product segments have not saved the day.
Apple’s line of iPhones, the report reads, has almost always maintained a high profit margin compared to the costs incurred. For example, the previous model, the iPhone 13, is estimated to have a base charge of at least 75%. According to Rao, the higher price tag doesn’t necessarily mean a better or more feature-rich experience, as Apple’s # 1 competitor, Samsung, is wont to point out.
Apple’s strengths
Since Apple doesn’t necessarily make the “best-in-class” smartphones for their price, the question of market resilience (at least in the United States) can be evaluated, according to Rao, in historical terms.
Firstly, the report reads, the company’s excellent relationship with telecom service providers has meant that the high costs of the product were “spread” over a two-year period. Recent initiatives, however, have resulted in the costs of the two-year payment plan being largely the same as the initial cost for all operators, including Apple’s marketplace.
Second, Rao writes, le Apple’s marketing campaigns they have helped create a sense of “social conformity” among the buying public over the years.
The third point is pretty intuitive: switching devices is a relatively easier experience if the new device has the same operating system. iOS is exclusive to iPhones, while Android users have a wide range of phone manufacturers to choose from. Therefore, the report reads, an existing iPhone user is more likely to switch to another iPhone. However, the choice to “pay more” for “less” is not necessarily a choice that most customers would be comfortable with in more recent times.
Global shipments of iPhone users are down
It has been estimated that, as of the second quarter of 2022, Apple’s share in global smartphone shipments it has shrunk to almost the levels of the first quarter of 2021.
In terms of prices, the report reads, Apple products compete mainly globally with a number of products offered by Samsung and Xiaomi. In the quarterly trend of the period between January 1 and the second quarter of 2022, Apple recorded a much more marked drop in shipments compared to its two global rivals.
According to Rao, there is one growing trend of US buyers not to spend, given inflationary trends and rising debt (and loan defaults). Paying “more” for “less” is still cheaper (financially) than it was two years ago.
The Apple stock and its role as a leading indicator
Rao believes there are very good reasons why the Apple stock should be considered a leading indicator for the S&P 500 and vice versa.
2020 was an exceptional year: the implicit PE ratio of the index and that of the company’s shares were almost identical, with a very high correlation. The wave of purchases of the company’s products in 2021 imposed a much higher median on the company’s stock and changed the correlation with the index. Rao also points out that the P / E Ratio of the S&P 500 it is nowhere near the historical average of the 21st century and it is much further from the lows recorded during the 2008 financial crisis.
In other words, the report reads, given the Cupertino company’s historic “wake-up call” status under the S&P 500 and the fact that the underlying factors affecting consumption have not yet received adequate support, according to Rao. there is no reason to believe that the fund is already in sightneither for the index nor for the shares of Apple.