The building is about to collapse, and it is hard to support it alone. The Fed's aggressive interest rate hike is accelerating its U.S. economy into recession, and no company can survive by then, and even giants like Apple, the world's highest-capital market capitalization, will inevitably avoid weak growth.
As Apple is about to release its third-quarter (second quarter) performance report for 2022, many major banks such as Wells Fargo, Morgan Stanley, and Citibank have lowered their target prices for the company, worried that the weak economy may affect demand and sales of Apple products and further affect the performance of the technology giant. Pessimistic analysis predicts that Apple will see its worst quarterly growth since 2020.
worst quarterly growth since 2020?
Bloomberg data shows that analysts expect Apple's sales growth to decline sharply in the second quarter, with revenue expected to be US$82.7 billion, and revenue growth will decline to 2% year-on-year, setting the lowest growth rate since 2020. Correspondingly, Apple's revenue in the second quarter of 2021 increased by 36% year-on-year.
analysis predicts that the revenue generated by the iPhone will account for just under 50%, and the revenue generated by the service is expected to be close to US$20 billion, accounting for more than 24%.
FactSet data shows that analysts expect Apple's net profit in the second quarter to fall 13% year-on-year to $18.81 billion.
As the US stock market is about to usher in the most critical week of this summer, U.S. inflation is still rising and rising, the Federal Reserve continues to tighten monetary policy and push up borrowing costs, the strengthening of the US dollar affects corporate income in US dollars, and the risk of the US economy entering a recession increases. Analysts are worried that the slowdown may curb product demand and further affect its performance. Based on many concerns, Wall Street banks Morgan Stanley, Wells Fargo and Citibank lowered their target prices for Apple by $5, 20, and 25 to $180, $185 and $175 per share respectively.
Bloomberg data shows that all analysts currently covering Apple have an average target price of about $180 per share for the company, but it is still higher than Apple's current share price. As of press time, Apple's share price was $154.1 per share. Although it has been rising for a month, its highs since March have fallen by nearly 14%.
And analysts' concerns are more than that.
In April this year, Apple warned on a first-quarter earnings call that due to the epidemic and supply chain tightness, its revenue in the second quarter may drop by $4 billion to $8 billion.
Secondly, as the global economy gradually emerges from the shadow of the epidemic, demand for home electronic products has begun to weaken, which may affect Mac and iPad sales this quarter. During the epidemic, due to the impact of the lockdown policy, demand for home office equipment has strengthened, causing Apple Mac and iPad sales to rise sharply.
Morgan Stanley analyst Katy Huberty said the potential weakness in Apple's Mac and service divisions could offset "strong iPhone performance", and she expects iPad and Mac sales to fall 7% and 26% month-on-month, respectively.
In addition, considering economic issues, more consumers may be reducing their consumption desire and avoiding purchasing non-essential electronic products. Even if they want to buy it, they are more likely to wait until the new product is available this fall before purchasing the latest iPhone, Air Pods Pro, Apple Watch and iPad.
Can Apple give the market an unexpected surprise?
While most analysts are concerned about Apple's second-quarter performance, securities firm Wedbush Securities analyst Dan Ives is still confident in Apple, saying that the company's second-quarter performance should meet expectations and gave Apple a "outperform" rating.
Ives pointed out: "Demand for iPhone is slightly better than expected." However, he also warned that the market may remain weak until the iPhone 14 is on the market in the fall. "By 2023, Apple will continue to focus on launching powerful products and services, including the highly anticipated AR/VR helmets we believe are highly anticipated."
In addition, Morgan Stanley analyst Erik Woodring is still bullish on Apple in the long term, and he believes that Apple's shift from a pure hardware company to a subscription-based business model will provide a clear path for the company's market value to return to $3 trillion.
Huberty also said that Apple is "the best choice for pursuing high-quality stocks during economic downturns." While Apple may be "more cautious" in its next quarter's performance guidance, the company is a high-quality stock overall.
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