Apple (NASDAQ: AAPL) presented its latest financial performance on May 2. For the second quarter of fiscal 2024, Apple witnessed a 4% decline in revenue to $90.8 billion compared to the previous year. Despite this, the tech behemoth managed to outperform analysts’ expectations by $190 million. Net income also experienced a slight dip of 2% to $23.6 billion. However, Apple’s strategic $43.3 billion buyback initiative increased its diluted EPS by a penny to $1.53, surpassing the consensus estimate by $0.03.
Post the earnings report, Apple’s stock saw a modest 8% increase over the past year, trailing behind the S&P 500’s 22% surge. The burning question on investors’ minds now is: Will Apple’s stock soar in the next 12 months or continue to lag behind the broader market?
Image source: Apple.
The Triple Threat Facing Apple
Apple is currently grappling with three significant challenges: diminishing iPhone sales, sluggish performance in Macs, iPads, and other hardware segments, and regulatory hurdles impacting its services division.
The decline in iPhone sales by 10% in the second quarter of fiscal 2024, following 6% growth in the previous quarter, and a 2% drop in fiscal 2023, reflects challenges faced by Apple. Factors contributing to this slowdown include the conclusion of the 5G upgrade cycle and increased competition in China from Huawei, Honor, and Xiaomi.
Furthermore, macroeconomic factors, coupled with comparative difficulties from the prior year’s surge in high-end iPhone shipments, affected Apple’s second-quarter iPhone sales trajectory.
Mac sales, on the other hand, rebounded with a 4% rise in the second quarter, spurred by the successful launch of the new MacBook Air. This positive momentum hints at a gradual recovery in the laptop and desktop PC markets post-pandemic.
Despite challenges, Apple’s Services segment continues to be a significant growth driver, growing by 13% year over year and constituting 22% of overall revenue. However, regulatory scrutiny around antitrust issues poses a threat to Apple’s Services ecosystem, potentially impacting its billion-strong subscriber base.
Uncertainties Loom Over Apple’s Strategy and Valuation
Apple’s strategic pivot towards emerging markets like India to boost iPhone sales signals a shift away from a China-centric approach. However, the competitive landscape in these markets, dominated by affordable Android alternatives, remains a pressing concern.
The lack of clarity regarding Apple’s future plans, such as the underwhelming performance of its Vision Pro and the shelving of its electric vehicle initiative, casts a shadow on its growth trajectory. Initiatives like generative AI features aim to bolster its competitive stance against tech rivals but may fall short of driving substantial growth.
Analysts project modest revenue and earnings growth for Apple in the coming years, with expectations for a 7% revenue increase and 9% earnings growth in fiscal 2025. Despite these projections, Apple’s current valuation at 27 times forward earnings poses a hurdle, potentially deterring income-focused investors.
Betting on Apple’s Future
Apple’s stock remains an enticing option in the current high-interest-rate environment, offering stability to risk-averse investors. However, a shift in interest rates could prompt a move towards higher-growth stocks, potentially challenging Apple’s market performance. While Apple’s stock may ascend in the next 12 months, its ability to outpace the S&P 500 and rival companies remains uncertain.
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Leo Sun holds positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool adheres to a disclosure policy.