How Apple can exit a slump: Analyst
In This Article:
Three of the Magnificent Seven –– Apple (AAPL), Alphabet (GOOG,GOOGL), and Tesla (TSLA) –– are lagging behind the other four. Apple is the second largest laggard, down 10% year to date. The company has seen four quarters in a row of declining iPhone sales, weakness in Chinese markets, a hefty EU fine, and a major patent dispute. Analysts have taken note of the tech giant's challenges, with several firms downgrading the stocks or removing them from their buy lists.
Needham & Co. Senior Media & Internet Analyst Laura Martin joins Yahoo Finance to discuss Apple's performance and her optimism about a turnaround.
Martin points to Apple's installed base of two billion devices: "What they have is sort of consumer lock-in for that group of devices...Maybe demand is slower in China, but they have these really wonderfully wealthy demographics already using their ecosystem. So they need to add advertising to drive revenue growth, its a $600 billion a year business and they do $2 billion a year in it. They need to add advertising to get growth back and also advertising has 80% profit margins. They need to figure out a way to add more services and software that they can get more subscription revenue, which is a 60% margin, to get more revenue per device."
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
SEANA SMITH: Well, three of the seven Magnificent Seven stocks are taking hits so far this year. Shares of Apple, Alphabet, and Tesla are in the red this week. And we are focusing on those three laggards and what it's going to take for some of that momentum to turn.
Today, we're talking Apple. Shares are down about 10% since the start of the year. Apple came into the year with some worrisome trends. Four quarters in a row of declining iPhone sales, with weakness in China weighing on those results. Apple, also facing a legal battle over the blood oxygen sensor in its Series 9 and Ultra 2 Watch models. Analysts were quick to pick up on the growing problem.
Piper Sandler, Barclays, and Redburn Atlantic, all downgrading the stock in the first couple of weeks of the year. Goldman Sachs, removing Apple from its conviction buy list in March. A slew of negative headlines and data has also contributed to the stock's declines this year.
From the blood oxygen patent dispute to the company's disappointing Q1 results and guidance, to the reported cancelation of the company's 10-year-old EV project, and a hefty fine from the EU over Apple's App Store practices. Most recently, a Counterpoint Research report showing that China's smartphone sales dropped 24% in the first six weeks of the year compared to a year ago.