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Apple Stock Dips After Barclays Downgrades to Underweight

2024.01.03

 

Key Takeaways

  • Apple shares fell 4% following Barclays’ downgrade to underweight, citing weak iPhone sales and regulatory challenges.
  • Concerns about Apple’s service business growth and regulatory scrutiny contribute to the revised outlook for the tech giant.

Apple’s Stock Performance and Outlook

Apple’s stock experienced a 4% decline on Tuesday, a reaction to Barclays’ decision to downgrade the stock to underweight. The adjustment was accompanied by a marginal decrease in the price target, from $161 to $160. This revision reflects concerns about Apple’s current sales trajectory and future market performance, particularly in key areas like hardware and services.

iPhone Sales Under Scrutiny

The downgrade was primarily driven by concerns over the iPhone 15’s underwhelming sales performance, especially in China. Analyst Tim Long highlighted ongoing weaknesses in iPhone volumes and a noticeable lack of recovery in other Apple products, including Macs, iPads, and wearables. This trend has been observed since October, particularly emphasising the Chinese market’s response to the latest iPhone models.

Regulatory Challenges for Apple

Another significant factor influencing Barclays’ outlook is the anticipated regulatory scrutiny on Apple’s services business. While this segment has historically yielded high gross margins – roughly double that of Apple’s hardware products – its future growth may be hindered by regulatory interventions. CEO Tim Cook previously noted better-than-expected performance in this sector, but Long remains cautious about its long-term reliability.

The Google Factor

A specific concern for Apple’s services sector is the outcome of the Google Traffic Acquisition Costs (TAC) and App Store investigations. Currently, Google pays Apple a substantial percentage of its Safari search revenue, a practice that is under close examination by regulators. The outcome of these investigations could significantly impact Apple’s services revenue, adding another layer of uncertainty to the company’s financial future.

 


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