Two Reasons Why Apple's Stock Is Sliding
When Apple's stock briefly traded above $700 in September, some bullish analysts raised their target for the stock to $1,000.
Four months and two disappointing earnings releases later, the tide has turned. Apple's stock price dropped 35 percent since September, shaving $250 billion off the company’s market cap.
Apple's growth in the past decade, particularly since introducing the iPhone in 2007, has been nothing short of breathtaking. Apple went from an also-ran computer vendor to a company generating profits in dimensions normally reserved to oil companies, as Tim Cook recently put it.
However, every great run inevitably comes to an end, and, as it seems, so did Apple's. So what led to the turn in fortunes for Apple?
First of all, Apple created a monster of expectations that is getting increasingly hard to satisfy. A good quarter from Apple is no longer enough, as people are expecting great quarters. A great product is no longer enough, as people are expecting revolutionary products. The company finds itself under brutal scrutiny and every misstep, trivial or severe, turns into a major news story. As a consequence, Apple is having trouble producing good news, at a time when it desperately needs them to turn the momentum back in its favor.
What’s more important though, is that Apple's growth machine appears to be cooling down a little bit. In recent quarters, revenue growth decelerated significantly as Mac sales slump and competition in the smartphone and tablet markets is heating up. Perhaps even more worrying is the fact that Apple's gross margins have declined for four quarters in a row on a sequential basis. Many analysts are taking this as a sign that Apple's profits may have peaked and that the company’s best days are behind it. If Apple's margins continue to decline, the company will need to reaccelerate revenue growth in order to keep profits where they are now, let alone increase them.
The often rumoured Apple TV could certainly add a couple of billion to Apple's revenues, but, as the TV market is a low margin business, it could also increase the pressure on the company's margins.
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