Whenever a company makes an update to its quarterly revenue guidance, investors need to take note. This is particularly true when one of the largest companies in the world lowers their revenue guidance mere weeks after their latest quarterly earnings report. That is exactly what happened on February 17th, 2020 with Apple (AAPL).
Per Apple’s press release, “we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors. The first is that the worldwide iPhone supply will be temporarily constrained. The second is that the demand for our products within China has been affected.” Apple is letting investors know that meeting their quarterly revenue projections are out of the question at this point as the country of China continues to cope with the Coronavirus (COVID-19).
These types of updates are quite rare, especially so soon after a recent earnings report. If you listened to Apple CEO Tim Cook on their last earnings call, you probably were already anticipating uncertainty for their revenue numbers due to the massive public health emergency occurring in China. A “wider-than-usual” revenue range was mentioned for Apple’s Q2 numbers, which essentially signaled to investors that Apple is concerned about how this developing situation might affect their sales, revenue, and supply chain in the short-term. As investors, it’s important to understand what these types of scenarios mean for both Apple and the overall stock market.
What Does This Mean for Apple Stock?
As we mentioned earlier, it is exceedingly rare to see a company come out and update investors on revenue guidance so soon after a recent earnings release. What this means for Apple shareholders is that Q2 revenue estimates from their recent earnings report will not be met. In the short term, the situation in China will negatively impact Apple’s numbers. Apple has a number of manufacturing sites in China that are slowly returning to normal after an extended Chinese New Year Holiday. However, it seems as though Apple’s management realized that things will be ramping up much slower than they initially expected when they released their revenue guidance on January 28th, 2020. It might be a while before things return to normal in China for Apple.
In the short term, shareholders should expect Apple to provide less-than-stellar earnings for Q2 due to the slowed production and decreased demand for Apple products. Some shareholders might view the announcement in a somewhat positive light since Apple let them know about the update as soon as they possibly could. With that said, it’s never good news for investors to hear that revenue guidance is being lowered.
Currently, all of the Apple stores in China, as well as many of their partner stores, are closed due to the global health issue. Their supply chain has been negatively impacted as well. In their press release, Apple mentioned that “The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary”. The real question is how long Apple will end up being impacted by these issues in China.
What Does This Mean for the Stock Market?
It’s important to take a macro-level view of the market after a market leader makes an announcement like this. Apple makes up a huge portion of the S&P 500 Index thanks to its massive market capitalization. If Apple had to decrease its guidance due to the situation in China, the chances are good that other companies will need to follow suit. This could mean the beginning of a market correction.
It’s possible that this is the first warning sign of just how big of an impact the Coronavirus (COVID-19) will have on the stock market and the global economy. Companies with lots of exposure in China will be impacted the most by this global health emergency in the short-term, and it will be interesting to see just how large of an impact it makes on major companies’ earnings going forward. As an investor, it can really pay off to be cautious in times of global uncertainty. On the other hand, those investors that have been looking for an opportunity to buy Apple stock on a pullback might get their chance in the coming months.