For the day, the Dow fell 2.21% and the S&P 500 fell 1.82% while the tech heavy NASDAQ was down 1.70%. In contrast, Apple shares were down 4.78% at the market close and were even lower in after hours trading. This followed a decline yesterday, bringing the two-day drop to 7.2%.
Overall weakness in the FAANG group of tech stocks — Facebook, Amazon, Apple, Netflix, and Google — has been cited in the past as a factor in Apple’s recent decline.
However, the FAANG excuse could not be used today as both Google and Facebook shares closed slightly up, while Amazon and Netflix closed down just over 1%, slightly better than the overall market decline.
Goldman Sachs analyst Rod Hall pointed to a number of factors, such as a report in The Wall Street Journal of further production cuts in the new iPhone models, and a general disinterest in the iPhone XR.
Talking heads on financial channels are postulating that the US$749 price tag for the iPhone XR has excluded Apple’s so-called budget phone from large sectors of the China and India markets, where Apple is looking for much of its growth.
According to Hall of Goldman Sachs, the market has adjudged Apple as being at the limit of its price premium for the iPhone. With unit sales growth stalling, Apple now relies heavily on price increases for its revenue growth.
This in turn has a negative impact on Apple’s plans to grow its services business – iCloud, Apple Music, Apple Pay and so on. Without increases in its user base, Apple can’t grow its services business.
Some pundits believe that Apple unit sales will recover, along with its share price, with the Black Friday shopping event, which starts this week. Apple is clearly pinning its hopes on this, sending blank mass-market email ads for the event to its gigantic global user base.
With a PE (price to earnings) ratio of less than 15, Apple is now considered by the market to be a mature stock, much like IBM, rather than a growth play.
The company now pays investors dividends and with little to show for its growth strategy, other than buying back its own shares, Apple may have to consider returning even more of the massive US$400 billion wad of cash it has in the bank to its shareholders.