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Apple faces stock decline and antitrust concerns

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2024-01-08

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The first week of 2024 was less than favorable for Apple as its shares dropped by nearly 6% in a shortened trading week (due to New Year). The world's largest company by market value is bracing for more uncertainty in the immediate future.

In fact, if the stock's weakness continues this week, it could lose its position as the world's most valuable company by market value to Microsoft, which was only $US100 billion behind Apple at Friday's close.

Shares of the technology giant ended down 0.4% on Friday, with a temporary 1% dip, after the New York Times reported that the US Justice Department is moving closer to filing a massive antitrust case against Apple, particularly targeting its key iWatch and iPhone products and associated services.

Friday marked the fifth consecutive day of losses for Apple, with the closing price at $US181.18, representing its longest losing streak since October when the shares reached their lowest point at $US166.80 on October 26.

The shares lost 5.9% last week and are down 9.2% from the all-time high of $US199.62 reached on December 14. This fall has seen the company's market value slide from more than $US3.1 trillion to $US2.83 trillion on Friday, leaving Apple just ahead of Microsoft, which closed Friday at a value of $US2.73 trillion.

Apple's challenges did not affect the value of shares of Berkshire Hathaway (Apple's largest single shareholder), which rose 1.9% last week, outperforming the 1.8% rise in the S&P 500.

Since the December 14 peak, Apple shares have been pressured by a patent issue with part of its iWatch offering, delayed by the company obtaining an emergency court injunction to halt the start of a ban from the American Federal Trade Commission (FTC). This could cost Apple billions of dollars a year in sales if the ban is enforced or if Apple is forced into a deal with the company it allegedly used patents from without permission.

In Europe, Apple is facing new rules regarding its App Store control over software distribution.

The outlook for Apple has suddenly shifted from rosy to increasingly uncertain, contrasting with the way the stock ended 2023.

"While Apple's share price increased by 48% in 2023, our concerns regarding Apple's legal risks have intensified in recent months," wrote CFRA analyst Nick Rodelli in a note on Friday.

Friday's muted reaction to the New York Times report was temporary, and as media and others seek more details, the company's shares are certain to come under fresh pressures as each new revelation emerges. Any action is expected before June, according to the report.

The report states that the Justice Department is in "the late stages" of its investigation, focusing on the company's control over hardware and software services and how its "walled garden" approach has allegedly made it harder for rivals to compete and customers to switch to competing products. It has expanded its scope beyond what was previously reported, including examining how the Apple Watch is more tightly integrated with iPhone services than rival wearables and how it locks competing platforms out of iMessage.

Apple had nothing to say on Friday but has recently stated that it will vigorously defend itself against what it sees as baseless allegations. Apple argues that its innovations have created a better user experience and fueled a thriving app economy.

If the DOJ succeeds in its antitrust pursuit, it could have profound implications for Apple and the tech industry at large, potentially forcing Apple to change its walled garden approach, which boasts more than a billion subscribers and close to two billion devices worldwide.

This investigation of Apple is the latest in a series of actions by the US Government against the members of the "Magnificent Seven" stocks (Apple, Amazon, Alphabet, Meta, Tesla, Nvidia, and Microsoft). The Justice Department is pursuing two antitrust cases against Google (one for search and the second for advertising), while the FTC has sued Meta and Amazon. However, the looming Justice Department lawsuit, if it happens, would be the biggest antitrust risk for Apple in years. The US is Apple's biggest market, and Apple claims that the way iMessage and the Apple Watch function are essential features distinguishing iPhones from Android phones. Europe remains a concern, prompting Apple CEO Tim Cook to meet with the European Commission's top antitrust enforcer, Margrethe Vestager, next Thursday.

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