Apple stock had a tough week facing bearishness on post-earnings results. Shares of the Cupertino company ended trading at $130, -1% in the past five days. See below.
The Apple Maven brought the main topics that were news this week.
Can Apple stock shake off post-earnings softness?
Apple delivered an astonishing set of fiscal second quarter numbers on April 28. Yet, the stock reacted as if none of it had happened. Shares dipped 2% last week, most of it after the company’s historical earnings day.
- Is growth sustainable?
Apple’s revenue and EPS beats (i.e. performance above consensus) of $12.3 billion and $0.41, respectively, were the widest ever. Also, the company provided partial guidance for fiscal third quarter that points at another positive surprise relative to expectations.
Nothing seems to be wrong with Apple’s business today or in the near future. But investors seem to have looked forward a bit: what will happen to Apple’s financial performance, once the pandemic-driven “stay at home” tailwinds dissipate? Will the iPad and Mac continue to produce growth rates of over 70%, for example? The answer, in my view, is clearly not.
App Store: This could become a major concern
Early May marked the beginning of the Apple vs. Epic Games trial. The latter has been accusing the former of using the App Store in a way that discourages competition and rewards the Cupertino company over developers.
Any of several outcomes could derive from this legal fight: from an Apple victory in court to a settlement between the two parties. The most destructive consequence to shareholder value, in my view, would be a change in the App Store’s monetization model that hurts Apple’s future financial performance.
- The post-pandemic headwinds
Lastly, but probably more impactful to short-term results, evidence begins to surface that App Store revenues will not be as strong as previously expected in fiscal third quarter. This could be the beginning of a six-month period of challenges for the App Store, as:
- comparisons against early COVID-driven demand toughen and;
- discretionary dollars begin to shift towards away-from-home spending in a post-pandemic environment.
Why Apple stock took a massive hit
On Tuesday, May 4, it was a tough day for Apple stock bulls. Shares of the Cupertino-based company dipped 3.6%, the stock's third worst performance since the 2020 US Presidential election and the announcement of the first COVID-19 vaccines.
- The Apple vs. Epic Games battle over the former's App Store policies rages on. Only the first two days of the antitrust trial has been left behind, in what is expected to be a multi-week saga. While the outcome is yet to be known, uncertainty alone could be a bearish force dragging Apple stock.
- If the bench trial were not enough, a long-time Wall Street bull sounded a bit less excited about the App Store. Morgan Stanley's Katy Huberty saw "softer than expected" April App Store data, and lowered her fiscal third quarter App Store growth rate rather sharply, to 11% from 19% previously.
- Softness seems to have been widespread in the market, and not confined to Apple shares. Comments from Treasury Secretary and former Fed Chair Janet Yellen regarding the need for higher rates "to make sure our economy doesn't overheat" probably helped to put pressure on tech and growth stocks.
Why jobs report miss is good news for Apple stock
The big news of this Friday, May 7, has been the April jobs report. While experts forecasted an addition of 1 million jobs in the US, on average, the number came in well below expectations: 266,000.
- When bad news is good news
This seems to be a discrepancy, at first. A robust workforce should mean more discretionary spending, which bodes well for the iPhone maker. But, at the same time, a weaker-than-expected recovery means that the safety net will likely remain in place for longer.
The 266,000 jobs reported on Friday probably fell within a goldilocks zone of sorts: not too high to signal a pullback in fiscal and monetary support; but not too low to suggest that the economic recovery has been crumbling.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)