Apple Inc. (NASDAQ: AAPL), the world’s most valuable company, saw its market value drop below the historic $3 trillion mark on Friday, as investors reacted to its disappointing fourth-quarter outlook. The tech giant reported its third consecutive quarter of declining sales, and warned of a similar trend in the current period, amid sluggish demand for its smartphones and other devices.
Apple’s Sales Slump in Q4
Apple posted revenue of $83.4 billion for the fourth quarter of 2023, down 5% from a year ago, and below analysts’ expectations of $84.8 billion. The company also missed its own guidance range of $85 billion to $89 billion, citing supply chain challenges and weaker consumer spending.
The main culprit for the sales decline was the iPhone, which accounts for more than half of Apple’s revenue. The company sold 69.9 million units of its flagship product in the quarter, down 11% from a year ago, and below analysts’ estimates of 72.3 million. The average selling price of the iPhone also fell to $809, from $839 a year ago.
Apple blamed the iPhone slump on several factors, including the delayed launch of the iPhone 15 series in September, which reduced the number of weeks available for sales in the quarter; the ongoing chip shortage, which constrained the supply of some models; and the unfavorable currency fluctuations, which reduced the purchasing power of some customers.
The company also faced stiff competition from rivals such as Samsung, Xiaomi, and Vivo, which gained market share in key regions such as China and India. According to Counterpoint Research, Apple’s global smartphone market share fell to 13% in the fourth quarter, from 16% a year ago.
Apple’s Other Segments Also Underperform
Apple’s other segments also failed to impress investors, as they showed signs of slowing growth or contraction. The Services segment, which includes revenue from Apple Music, Apple TV+, iCloud, App Store, and Apple Pay, grew 16% year-over-year to $19.5 billion, but missed analysts’ expectations of $20.1 billion. The segment also saw its growth rate decelerate from 25% in the previous quarter.
The Wearables, Home and Accessories segment, which includes revenue from products such as AirPods, Apple Watch, HomePod, and Beats headphones, grew 6% year-over-year to $9.1 billion, but fell short of analysts’ estimates of $9.6 billion. The segment also saw its growth rate slow down from 12% in the previous quarter.
The Mac segment, which includes revenue from products such as MacBook Air, MacBook Pro, iMac, Mac mini, and Mac Pro, declined 2% year-over-year to $9.2 billion, and missed analysts’ projections of $10 billion. The segment was hurt by the chip shortage, which limited the availability of some models.
The iPad segment, which includes revenue from products such as iPad Pro, iPad Air, iPad mini, and iPad, declined 12% year-over-year to $6.1 billion, and fell below analysts’ expectations of $6.8 billion. The segment faced tough comparisons with a year ago, when demand for tablets surged amid the pandemic-induced lockdowns and remote learning.
Apple’s Outlook Disappoints Investors
Apple’s outlook for the first quarter of 2024 also disappointed investors, as it implied another quarter of declining sales. The company expects revenue to be between $80 billion and $84 billion, representing a decrease of 7% to 11% from a year ago. Analysts were expecting revenue of $88.4 billion for the quarter.
The company cited several headwinds that will impact its performance in the quarter, including the persistent supply chain challenges that will limit its ability to meet demand; the unfavorable currency effects that will reduce its revenue by about $2 billion; and the uncertain macroeconomic environment that will affect consumer spending.
Apple also expects its gross margin to be between 38% and 39%, lower than analysts’ expectations of 40%. The company said that its profitability will be pressured by higher costs related to components, freight, and labor.
Apple’s Stock Plunges Below $3 Trillion Mark
Apple’s stock plunged 4.8% on Friday to close at $161.12 per share, resulting in a market capitalization of about $2.85 trillion. The stock’s decline erased more than $160 billion in market value in one day.
Apple became the first company to reach a $3 trillion market value in June 20231, after its shares hit an all-time high of $197.68 per share2. Since then, however, the stock has lost about 18% of its value3, as investors grew concerned about its growth prospects and valuation.
Apple’s stock trades at about 28 times its estimated earnings for the next 12 months4, a premium to both its own historical average and the overall market. Some analysts have argued that the stock is overvalued, given its slowing growth and increasing competition.
However, not all analysts are bearish on Apple. Some have maintained their bullish ratings and price targets, citing the company’s loyal customer base, strong brand, diversified product portfolio, and growing services revenue. Some have also expressed optimism about the company’s potential entry into new markets such as electric vehicles and augmented reality.
