The market fell in a big way yesterday. The root cause? Apple. Apple has cut its iPhone sales guidance, and it now seems a recession is coming to the whole Apple universe. The numerous companies that make their living supplying Apple seem set for a severe correction and are paring their estimates back sharply. Investors didn’t seem ready for this slowdown in the iPhone, perhaps misguided by the hype that has recently surrounded new models. The fact is that the iPhone is now a mature product, and maintaining the kind of growth it once had is likely untenable, a fact that even Wall Street analysts are starting to admit.
FINSUM: Apple’s business is changing and it seems to be doing a good job managing that transition, though everyone hopes it will have a new dynamite product. That said, a general recession surrounding the iPhone universe seems likely.
Amazon has seen some significant volatility lately. A weak earnings report sent the stock plummeting, and weaker top line growth is making some worry. The stock is down 17% since the beginning of October. However, the company’s bottom line seems likely to grow strongly as it starts to benefit from its massive scale. A Nomura analyst summarized the situation best (and interestingly), saying “AMZN’s size and scale are eclipsing its ability to suppress margins … Put simply, it seems AMZN sales and GP [gross profit] dollars are growing faster than their ability to spend”.
FINSUM: We don’t think Amazon is in trouble by any means. The company is just transitioning into a more mature state where topline growth will slow, but margins will rise.
In what seems like a dramatic development considering all the other news that comes out on self-driving cars, people close to the situation say Waymo, Google’s self-driving car subsidiary, will launch an autonomous car service next month. The service is supposed to compete directly with Uber and Lyft.
FINSUM: Doesn’t this seem a little soon considering how recently fatal accidents were occurring? This could be a frivolous headline, but it could also be a major technological moment and potentially a good time to buy Alphabet.
Apple’s stock got hit in a big way last week as the company announced it would no longer announce unit sales of iPhones. The announcement was taken as a sign of weakening iPhone demand. An analyst summed it up this way, saying “Apple Reduces Disclosure; Typically Not a Good Sign”. The stock has fallen 10% since the announcement. The more positive view is that Apple wants investors to focus more on its earnings than on its unit sales, as earnings are ultimately what will drive the shares forward.
FINSUM: Apple’s shares often fall on earnings (8 out of the last 15 times), so the company has little to lose by eliminating unit sales. We think this is a smart move, especially as the iPhone transitions to being a highly saturated and mature product.
The Wall Street Journal ran a major headline on Amazon’s search for a new headquarters yesterday. The newspaper says that Amazon is now planning to not host a single headquarters but open two new smaller offices, splitting the total of 50,000 new hires between two locations. New York and Northern Virginia are said to be the choices. The WSJ says Amazon decided to have two because it would make hiring the tech talent they want easier.
FINSUM: While they were under no obligation follow through, this development does seem a little unfair to the cities bidding. Cities put in resources to get the full as-promised HQ from Amazon, so only getting half the return is perhaps a little disappointing (though still very positive).
Amazon has been hit hard lately. The company’s surprise earnings caught the market off guard, which led to a big tumble in the shares, with the stock dropping over 10%. However, that presents a good buying opportunity, says Barron’s. The market was nervous because of the slowdown in revenue growth, but according to one analyst “We believe revenue growth is becoming a less relevant metric for Amazon given the outsize growth of the company’s cloud and advertising businesses”.
FINSUM: Amazon is still a fast growing business, but it is becoming more mature, which means expanding margins are going to be a key metric to watch. That is an area the company is excelling in.