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Like many other tech stocks, Apple (AAPL) had a very tough year in 2022. After notching an all-time intraday high on the first trading day of the year, the company’s stock price had fallen 28.6% by year’s end.
The iPhone manufacturer has plenty of company. Microsoft (MSFT) dropped more than 27% for the year, and the Nasdaq-100 Technology Sector Index (NDXT), an equal-weighted index of technology companies, declined nearly 40%.
Why Is AAPL Down Right Now?
The tech heavyweight took a hit in early November 2022 after announcing that its Zhengzhou facility in China would operate at “significantly reduced capacity.” The diminished output affected iPhone 14 Pro and iPhonePro Max shipments, causing a lag in delivery times.
Weak presales of the “non-Pro” models, which are in the lower price range, are also a concern. So the big question for Apple and its iPhone cash cow is: Can iPhone Pro sales offset a pullback in base model sales?
Record inflation and cost of living increases in 2022 have put a damper on demand, leading to the FAANG favorites—now known as MAMAA for Meta Platforms (META), Amazon (AMZN), Microsoft, Apple and Alphabet (GOOGL)—falling from grace.
Apple has been weathering the storm better than some large tech stocks, but concerns about sales of its latest iPhone line have put its future into question since iPhone revenue is at the heart and soul of Apple.
AAPL stock is struggling despite a relatively positive fourth-quarter earnings report for the 2022 fiscal year. Fourth-quarter and annual revenue were up 8% year over year at $90.1 billion and $394.3 billion, respectively.
Still, analysts are predicting a deceleration in revenues in Q1 of 2023 for the iPhone maker.
What Is Apple Known For?
Apple became a common household name after the 1984 debut of the Macintosh personal computer, launched a mere four years after the company’s initial public offering (IPO).
In 1980, Apple floated 4.6 million shares at $22 per share. If you bought one share when AAPL had its IPO, you would now be the proud owner of 224 shares.
The Cupertino, California-company has completed five different stock splits over the past 40-plus years. A share bought during Apple’s IPO would now be worth nearly $30,000, a tidy sum for a $22 investment. That’s a gain of more than 136,000%.
Another way to think about it is if you invested nearly $1,000 at its IPO price and bought 45 shares, excluding fees, these 45 shares would now be worth around $1.35 million, as of today.
Apple’s surge to the top as a Big Tech company wasn’t smooth sailing. The company lost market share throughout the 1990s after forcing CEO Steve Job’s exit several years earlier. At one point, experts thought it wouldn’t survive, as it teetered on bankruptcy.
Apple brought back Jobs in 1997, who steered the company as its CEO until his death in 2011.
Jobs had a knack for anticipating consumer needs before they existed, and his leadership put Apple on the map when it came to multipurpose mobile devices. Apple released its first iPhone in early 2007 for a steep $599 for the 8 GB device. Compared with competitor BlackBerry (BB), the original iPhone looked more like an iPod than a phone.
But over the next few years, the iPhone steadily gained market share despite its expensive price tag.
Today Apple dominates the U.S. smartphone market, accounting for more than 50% of smartphone sales. The smartphone innovator is heavily reliant on its iPhone line for revenue, it also propelled its growth for more than a decade.
When it comes to other major landmarks, Apple became the first megacap company to reach a valuation of $1 trillion in August 2018, a figure that has since doubled.
Jobs’ vision of a closed ecosystem has created a loyal fanbase who decorate their homes and live with Apple products, and has provided a solid buffer against the competition—essentially its fanbase is an “economic moat.”
Apple has also expanded into just about everything, from watches to credit cards to news, gaming and streaming services. All said Apple’s cash cow remains the iPhone.
iPhone sales accounted for more than 47% of net sales for the most recent fiscal quarter among the total $90.1 billion in revenue for the quarter. Apple’s services segment, which includes the likes of Apple Music, Apple TV+, ICloud+, and more; accounted for the second-biggest in net sales, representing over 21% in net sales.
Services is a growing segment for Apple, and market analysts also see long-term growth opportunities in its evolving augmented and virtual reality technologies.
Apple Analyst Ratings
Despite the Big Tech company’s recent struggles— analysts largely rate the company as a “buy.” Twenty-seven analysts gave AAPL a “buy” rating, eight allocated a “hold” and only two said “sell.”
Depending on who you ask, the average target price on the stock is between $118 and $200, with an average of around $173.
Argus Research rates Apple with a “buy” rating and a five-year earnings per share (EPS) growth rate of 165%, with a target price of $185.
Ford Equity Research in its Dec. 14 report stated, “While recent estimates for the company have been lowered by analysts, AAPL has posted better than expected results. Based on operating earnings yield, the company is about fairly valued when compared to all of the companies we cover. ”
Apple share prices, according to Ford Equity Research, should perform “in line with the market over the near term.”
Zacks Investment Research is “neutral” for the company, with a much lower target price of $156.
Overall, year-over-year revenue growth is expected to decelerate in the fiscal first quarter of 2023 due to unfavorable forex conditions and macroeconomic conditions.
Still, analysts write that Apple’s growing subscriber base in its services business presents a growth opportunity over the long term and a strong liquidity position.