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Karishma Vanjani
Apple's stock has been under pressure lately, and investors might want to take note of other potential challenges ahead.
Shares are down 12% this year compared with a 6% gain for the S&P 500. There's a fear that Apple can't maintain its strong pace of growth as analysts predict March quarter sales will fall 4.3% from the year earlier. Apple has abandoned its decade-long effort to produce cars and the latest data showed iPhone shipments dropped almost 10% in the first quarter.
While Apple is known to be a resilient stock -- it's up 26% on a 10-year annualized basis -- there are big regulatory risks ahead to monitor.
Closing arguments in an antitrust case against Google's monopoly on internet search are first, from May 1-3. The case targets the roughly $18 billion in estimated payments made to Apple every year for Google's default placement for search on Apple devices.
"The potential punishment that would have the greatest impact on Apple would be for the judge to forbid the payment for default search placement arrangement," wrote Evercore's Amit Daryanani on Tuesday. He estimated about $8 billion in fiscal net income is at risk for Apple.
The Justice Department, in a separate March lawsuit, has also contended that Apple violated antitrust laws to cement the iPhone's dominant position in the smartphone market using various strategies. Daryanani doesn't see a material impact to Apple's revenue from this challenge.
The government could lose both cases. It has faced recent setbacks in blocking Microsoft's acquisition of Activision Blizzard and dropped its challenge to UnitedHealth Group's acquisition of Change Healthcare. Still, the Google case is a key risk to monitor for Apple investors.
There's also the China issue. Weakness in the China market and lower iPhone sales led Needham's Laura Martin to revise her financial projections for Apple on Tuesday. She projects $90.8 billion sales in the fiscal second quarter, down 4% from a prior estimate. She also cut her view on Apple's earnings to $1.51 a share, down 1% from an earlier call.
The market estimates Apple will deliver profit of $1.51 a share on sales of $90.7 billion in the quarter ending March.
Competition from rival Chinese producers such as Xiaomi, Oppo, and Huawei could also be a problem.
Apple's stock was down 2% to $169.22 on Tuesday. The S&P 500 was down 0.2%.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
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April 16, 2024 12:04 ET (16:04 GMT)
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