It’s been a rough go of it lately for investors in the world’s largest company, technology giant Apple (AAPL). Shares had been roughly following the market through 2015, hitting a high around $135 in February and then trading sideways. Apple hit its ultimate high in April, peaking at $136.
They made one more push for new highs, getting back to $135 but no higher in July. And then the worm started to turn. Things started heading sharply lower, with the stock down 20% to $110 within a month. Then the flash crash hit, taking Apple as low as $92/share. More than $200 billion of market cap came off the company in just a couple months.
If nothing else, the company’s ascent to being the world’s first trillion dollar market cap corporation was significantly delayed. But as shares continue to languish in the ensuing days, we have to ask, was that a major top on Apple’s stock?
Before getting started, it’s important to remember this is Apple we’re talking about. One of the pioneering companies of our era, and they’ve consistently exceeded expectations.
It’s long been popular to talk about Apple as being another flash-in-the-pan tech company, whose fate is likely to end up following in the footsteps of Nokia, Motorola, Blackberry (BBRY) and other such felled giants. Yet the calls for Apple’s imminent decline have consistently been wrong so far. Apple did reach $100 (split-adjusted) in 2012 and had a sharp 40% drop in 2013. But it powered back up and blasted to new highs.
So why might $136 be the top for Apple and not just another short-term peak? Several problems are facing the company nowadays.
First, recent product innovations have been fairly lackluster. Apple is still primarily the iPhone company, but at some point, to justify their market cap, the other offerings need to turn into solid ancillary revenue streams.
The Apple watch appears to be a flop. It’s a product that doesn’t really make a lot of sense. It doesn’t really make sense as a consumer luxury item, and all the colors and options make it seem more like a fashion bauble than a well-constructed high-end functional product that Apple was known for making.
Apple Music appears to be a colossal misstep. It doesn’t work with Apple TV, nor with Siri. It takes up to 28 steps to upgrade iTunes to support it. Whatever happened to the Apple infrastructure making everything easy to use? And speaking of Apple TV, it’s still never really caught on. And the proposed launch of an unbundled service is unlikely to do much better than Viacom’s skinny bundle it already offers.
Since Steve Jobs’ untimely death, the company has run seemingly more and more adrift. As early as last year, surveys showed Android was catching up to Apple in terms of consumer satisfaction and “coolness”. And there’s no sign of that trend reversing. The IDC projects that Apple’s market share in the phone market will keep declining over the next few years.
The tablet market has really slowed down, what was once the bright new star for Apple has rapidly dimmed. And iPods, while still a nice product are way in decline.
On top of the questionable growth outlook for Apple’s core products, other problems are mounting. China is a big issue, as a rapidly decelerating economy and a devalued currency will serve as a double drag on Apple’s earnings potential there.
Apple also faces a broader foreign exchange problem. First that the dollar is very strong, reducing earnings on sales in foreign markets. But also, more broadly, that Apple earns tons of cash overseas that it hasn’t brought back to the US.
Should it want to do so, it would face a large tax burden. In order to avoid having to pay said tax, it has instead borrowed in the US against its foreign cash holding, performing an arbitrage of sorts to free up access to that cash.
Apple is now up to $54 billion in debt, which isn’t a large amount for a company of its size, but debt now exceeds the company’s famed cash pile. The era of a huge warchest of cash on hand to buy back stock, aggressively hike dividends, and otherwise support the stock price may be ending.
Is any of this to say that Apple should be sold short? No, not at all. It’s still one of, if not the single strongest tech companies on the planet. But it is a company that appears, at least for the moment, to have lost its mojo. The stock’s sharp drop and slow recovery shows that the easy money buying and holding Apple as it climbs ever-upward may be done.