The stock markets reaction to Apple’s iPhone guidance update this week says a lot about how far the company has come
Every iconic company in history had that one defining product. Nike (NYSE: NKE) had its Air Jordan shoes, Tesla (NASDAQ: TSLA) has its Model 3, and Apple (NASDAQ: AAPL) has the iPhone.
The iPhone is still the company’s defining product in some respects, and likely always will be, but it is no longer the be-all and end-all for the company, and the stock market proved that this week.
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Apple reduces revenue guidance for iPhone
Apple’s stock price fell less than 2% on Tuesday following a surprise investor update that cautioned investors that its first-quarter sales could take a hit due to the coronavirus outbreak in China.
While companies such as Alibaba (NYSE: BABA) and Under Armour (NYSE: UAA) have also stated that the deadly disease would affect business, they are a Chinese-based and struggling company respectively. Apple, on the other hand, is a U.S. tech giant, which makes the problem all the more real for investors.
Not only is Apple expecting sales in the important Chinese market to drop, but it is also anticipating a drop in iPhone production as the majority of its products are made in the region, and the factories are not yet fully operational following temporary shutdowns.
“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said.
Investors don’t seem too concerned
A dip in share price is perfectly normal after such an announcement, but it pales in comparison to how investors reacted this time last year to declining iPhone sales growth.
Just 13 months ago, Apple shares tumbled 10% in what became the stock’s worst single-day performance in more than half a decade. The fall came about after Apple CEO Tim Cook blamed China’s economic slowdown at the time for declining iPhone sales, and cutting its forecast.
Fast forward to today, and Apple has spent the past year beefing up its subscription-based model and diversifying into other products, and it all seems to have paid off. The difference in stock drop between the two announcements goes to show that iPhone sales are not the only way the company makes money, and investors are starting to pick up on that.
The rise of wearables, services, and others
Apple stock rose 86% in 2019, versus the S&P 500’s (NYSEARCA: VOO) 28%. It was the best performing Big Tech stock of the year, beating out Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG), and is carrying its rally over into the new decade.
This is due largely in part to the company’s soaring profits in services and wearables. At its most recent earnings call in January, it was reported that Apple wearables — which includes the Apple Watch and Airpods — soared to $10 billion in revenue, meaning it could be a Fortune 500 company on its own.
As impressive as this was, it still didn’t touch the success of the company’s rampaging services model, which jumped 17% last quarter to $12.7 billion. CEO Cook specifically referenced success with Apple TV+ in the earnings call, the company’s answer to Netflix (NASDAQ: NFLX) and Disney’s (NYSE: DIS) Disney+, while Apple Music overtook rival Spotify (NYSE: SPOT) in U.S. subscribers in the past year.
Apple’s iFuture looks bright
Despite a correction in iPhone guidance, the stock market is not punishing Apple like it used to. With a growing portfolio of diversified products, one of the most recognizable brands in the world, a $1.4 trillion valuation, and a $207 billion cash pile, Apple is prepared for anything 2020 throws at it.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in Apple. Read our full disclosure policy here.