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Why Apple Stock Dropped 13% in May

By John Ballard – Updated Jun 5, 2019 at 2:12PM

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Trade wars and other negative news overshadowed improving iPhone sales and upcoming catalysts.

What happened

Shares of Apple (AAPL 2.44%) lost 12.8% last month, according to data provided by S&P Global Market Intelligence.

Apple stock initially rose at the start of May following a positive second-quarter earnings report at the end of April. However, news about the trade war with China and complaints about Apple's App Store pricing took their toll on the stock price.

Apple TV plus logo

Image source: Apple.

So what

Entering the month, investors were upbeat about Apple's near-term prospects after the company delivered better-than-expected results for the fiscal second quarter.

Here are the highlights: 

  • Revenue came in at $58 billion, down 5% year over year, but slightly better than Wall Street's estimates. 
  • iPhone revenue was $31.05 billion, below estimates of $31.1 billion, but investors were encouraged to hear that iPhone sales were improving after the dramatic slowdown in December. 
  • More importantly, management issued better-than-expected revenue guidance for the third quarter, partly as a result of strong revenue growth coming from non-iPhone categories, especially services. 

Despite these encouraging signs for the near term, Apple stock started to slide along with the broader market when trade tensions ramped up between the U.S. and China. Investors worry that increases in tariffs will hurt iPhone sales.

Additionally, Apple was hit with the news that European regulators were launching an antitrust investigation into the fees that the iPhone maker charges to companies that sell through the App Store. 

The App Store didn't get any love in the U.S., either, as the Supreme Court ruled that Apple customers can file lawsuits against the company over app pricing. Some consumers claim that Apple is using its dominance to charge more for apps, although Apple has stated that developers set the prices for their apps, not the company. 

Now what

It was one of those months where the market got wrapped up in issues that might have some impact in the short term but don't affect the long-term health of Apple's business.

This is a pivotal year for the company that will set the tone for growth over the next few years. Of course, the big event is Apple TV+ launching this fall. And along with Apple Arcade, Apple News+, and the Apple Card, it should keep sales growth going in Apple's services category. Sales from services made up 20% of total revenue in the second quarter and grew 16% year over year. 

What's more, Apple is awash in cash, prompting management to announce a new share repurchase program of $75 billion -- a significant amount, totaling 9% of Apple's current market value. The company is also increasing the quarterly dividend payout by 5% to $0.77 per share. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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