On August 3rd, Apple released its third quarterly report for the 2023 fiscal year, which is also the second quarterly report for the 2023 natural year. The financial report shows that the total revenue for the quarter was US$81.8 billion, a year-on-year decrease of 1.4% from US$83 billion in the same period last year, and a decrease of nearly 14% from the US$94.88 billion in the previous quarter. This is also the first time since 2016 that Apple’s revenue has declined year-on-year for three consecutive quarters.
The results of the earnings report disappointed investors, and Apple’s performance guidance for the September quarter was also not optimistic, and both gross margin and revenue growth were expected to slow down. These news have triggered market concerns about Apple’s prospects, causing its stock price to fall by nearly 10% since last Thursday, and its market value has evaporated by more than 200 billion U.S. dollars. Apple shares continued to plummet today, down 1.7%.
Why Apple suffered such a big blow, analysts believe that there are three main reasons:
One is the decline in income. The iPhone is Apple’s most important product, accounting for nearly 50% of its total revenue. In the June quarter, however, iPhone revenue fell 2.4 percent year-over-year to $39.7 billion. While Apple has grown in services such as the App Store, iCloud, Apple Music, Apple TV+ and Apple Pay, revenue from these businesses still cannot make up for the iPhone’s shortfall. Additionally, Mac revenue fell 7.3 percent to $6.8 billion in the quarter, while iPad revenue plummeted 19.8 percent to $5.8 billion.
Second, the performance guidance is weak. Apple’s guidance for the September quarter is also not optimistic, with gross margins expected to be in the range of 44% to 45%, and revenue growth to be flat or down slightly from last year. While revenue from the iPhone and Services segment may have grown slightly, Apple Chief Financial Officer Luca Maestri said Mac and iPad revenue will continue to decline.
The third is overvaluation. Despite three straight quarters of declining revenue, Apple’s shares have risen 51% in the first half of the year, giving it a price-to-earnings ratio of 33. Even after the recent share price drop, Apple still trades at 30 times earnings. By comparison, the S&P 500 trades at around 20 times earnings. Some analysts believe that Apple’s valuation is too rich and does not reflect the macroeconomic environment and competitive pressure it faces.
For Apple’s future, Wall Street analysts are not unanimous. Some analysts who are bullish on Apple believe that the decline in iPhone sales is only a temporary phenomenon and does not represent a decrease in demand. They noted that iPhone revenue actually rose 1.4% year-over-year on a currency-adjusted basis. They also said that Apple still has great potential in overseas markets, especially in emerging markets such as China and India. They expect a “mini-supercycle” demand burst following the launch of the new iPhone 15 in September.
Other cautious analysts believe that it is difficult for Apple to get rid of the plight of dependence on the iPhone, and it is facing multiple challenges such as slowing growth in the smartphone market, intensified competition, and increased regulatory risks.
Whether Apple can regain its glory, or continue to decline, let us wait and see.
