Despite concerns over iPhone sales and antitrust issues, Apple has maintained a relatively stable stock performance, only experiencing a slight decline from its record closing high of $198.11 on December 14. Over the past 12 months, Apple stock has even seen a significant rise of 39%. However, recent analyst downgrades have impacted the stock due to potential weakness in iPhone and Mac sales, particularly in China. Additionally, a New York Times report has raised concerns about a possible antitrust case against Apple.
Within the first four trading days of 2024, Apple shares experienced successive falls.
While acknowledging the validity of these concerns, Evercore analyst Amit Daryanani suggests that the recent multiple compression has been exaggerated and he anticipates that Apple will exceed expectations with their upcoming results. In a research note, Daryanani reaffirmed an Outperform rating and set a target price of $220 for Apple stock.
Despite these challenges, Apple shares saw a 1% increase to $182.99 during early trading on Monday. Other major technology companies, such as Microsoft and Amazon.com, also saw modest rises of 0.8% and 1.4%, respectively. Concurrently, the S&P 500 index recorded a 0.3% gain.
The Growing Importance of iPhone Sales for Apple
The future of Apple lies heavily on the success of its flagship product, the iPhone. While some pessimists are predicting a decline in iPhone sales by single-digit percentages for Apple’s fiscal year 2024, we believe this outlook is overly pessimistic. Instead, we anticipate that iPhone revenue will remain relatively flat or even experience slight growth. Despite the perceived weakness in the Chinese market, we expect positive trends in other regions to compensate.
One factor that could contribute to maintaining iPhone revenue is the potential increase in average selling prices within the U.S. Additionally, Apple’s efforts to gain market share in India may help offset any drop in revenue experienced in China, estimated to be around 5%.
Addressing concerns surrounding potential antitrust issues, we believe these only pose a “headline risk” for Apple this year. It’s important to note that any investigation would likely take several years before reaching a conclusion. We can draw parallels from the ongoing Department of Justice lawsuit against Google’s parent company, Alphabet. This legal battle, which could potentially impact Google’s payments as the default search engine on iPhones and Safari web browsers, is expected to follow a similar timeline. Currently, this arrangement contributes an estimated $16 billion in net profit annually for Apple.
Despite these uncertainties, it is crucial to recognize that any financial impact resulting from these legal proceedings will take years to materialize. The outcome of these cases will likely have limited immediate consequences for Apple.
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Conclusion
Apple’s success hinges on the performance of its iPhone sales. While some speculate that sales may decline in the coming years, we firmly believe that iPhone revenue will remain stable or even experience modest growth. Although challenges exist in the Chinese market, there are opportunities to expand in other regions such as India. Furthermore, any potential antitrust concerns are unlikely to have an immediate financial impact on Apple, as legal proceedings are expected to be lengthy. In summary, Apple’s long-term prospects continue to look promising.