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Market Insights

Apple - looking beyond a consumer slowdown

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Stock Of The Week: Apple

Looking Beyond A Consumer Slowdown

A massive earnings week ahead. 175 of the companies in the S&P 500 will report earnings and we’ll get that all important forward guidance too.

Apple is perhaps the great unknown of the pack, although Google, Microsoft and Meta are sure to grab their share of the earnings headlines this week too.

Apple’s share price has had a mixed year. Initially falling by almost 30% from the absolute highs, the share price has recovered approximately half of that drop, and now eyes the 200 day moving average in the $158 zone.

Apple daily chart

Although Apple is unique in many ways and the company has thrived in a relatively stable world over the past decade, doubts are mounting. Even a giant like Apple can’t entirely escape the global consumer headwinds. The question is more one of the extent of the impact.

By now, everyone’s aware that inflation is a problem in the developed world. Inflation can erode purchasing power over time and is cited as one of the main concerns for households in many surveys. But it hasn’t really resulted in a huge pullback in consumer spending just yet.

It seems that consumers are saying they’re cautious, but those words/thoughts haven’t really seen demand take a huge hit, especially when compared to the pre-pandemic trend.

And there’s the income brackets to consider too. It’s well-known that Apple’s products are aimed more towards higher-income brackets, something they have in common with American Express.

What better gauge for the health of the high-end consumer than the iconic credit card issuer? Last weeks’ earnings report led with two key highlights.

  • AMERICAN EXPRESS SECOND QUARTER REVENUE INCREASES 31% TO $13.4 BILLION
  • EXCELLENT CREDIT PERFORMANCE REFLECTS STRENGTH OF PREMIUM CUSTOMER BASE

This is taken from the AMEX earnings presentation to back up that assessment:

AMEX

So, perhaps Apple won't have too much of a consumer problem. However, chip companies such as TSMC, SK Hynix & Micron have all warned of slowing chip demand, with some citing sluggish phone and computer sales as a factor.

In theory, this is all known and unlikely to surprise, but the magnitude of any demand hit is still uncertain, especially in Asia. China’s surveys also show the very cautious attitude to spending amid frequent sporadic lockdowns and employment uncertainty.

The strong USD could also hit earnings (just as it has for other companies that have already reported). Apple has recently raised prices of the iPhone and iPad in Japan (by as much as 25% according to some reports) due to the extreme yen weakness.

The Big Health Push

On July 20th, Apple published a white paper titled How Apple is empowering people with their health information detailing the many ways ‘Apple products are helping users, developers, and health organizations advance personal health, research, and care’

One of the keys to Apple’s success has been the companies’ ability to retain existing users while still continuing to grow the user base.

Apple’s focus on privacy combined with an ecosystem for health data could be another factor in maintaining customer loyalty, and the launch of Apple Pay Later adds another string to the bow.

Is Apple creating their own version of Hotel California? You can check out any time you like, but you can never leave?… Perhaps Apple will make that case: “We have all of your health data organised just how you like it and a nice easy payment plan for any Apple product you desire…”

Plans for further monetisation of the existing customer base are definitely something to watch out for this week, alongside any concerns about the overall macroeconomic picture.

Not investment advice. Past performance does not guarantee or predict future performance.

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Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue