Even the most valuable technology corporation in the world is not safe from the increasingly difficult conditions of the global economy.
Apple (AAPL) reported on Thursday that its profits fell by nearly 11 percent in the three months ending in June compared to the same period a year ago. This comes as the company works through an economic slowdown and supply chain disruptions in China as a result of the country’s zero-Covid policy. Apple’s quarterly report was released on Thursday.
The company that makes the iPhone reported revenue of $83 billion, representing a 2% increase compared to the same period in the previous year. Despite the fact that it was the biggest sales figure the company has ever achieved during its fiscal third quarter, it indicated a substantial slowdown in growth as compared to the previous year’s 36 percent year-over-year gain in revenue.
The company’s sales in Greater China, which was once considered to be one of the most promising markets for the business, decreased by approximately one percent during the quarter.
Despite this, Apple was able to outperform Wall Street’s forecasts for both its sales and its profits.
After the results were announced on Thursday, the stock of Apple rose nearly 4 percent in trading that took place after regular market hours.
According to the company, its installed base of active devices reached all-time highs in each product category throughout the course of the quarter. Apple’s quarterly sales from its services, which are a critical component of the company’s strategy for future growth, increased by 12 percent to $19.6 billion, which was slightly below the $19.7 billion analysts had expected to see from those sales.
During a conference call with investors and analysts on Thursday, Apple CFO Luca Maestri stated that the business now has more than 860 million paid subscriptions across all of its various services. This represents an increase of 160 million from the same time last year.
Maestri noted in a statement that accompanied the findings that “our June quarter results continued to illustrate our ability to manage our business efficiently despite the challenging operating environment.”
Apple’s results come at a time when a number of other technology companies have struggled to maintain strong growth in the face of rising inflation and interest rates, fears of an impending recession, and the fallout from the ongoing war in Ukraine. Apple’s results are particularly noteworthy because they come at a time when the tech industry as a whole has struggled to maintain strong growth.
Because of the unpredictability of the economic climate, the company did not provide any guidance regarding revenue for the current quarter.
On the other hand, according to Maestri, Apple anticipates that its year-over-year revenue growth will pick up speed in the September quarter compared to the June quarter. This, of course, is predicated on the assumption that neither the macroeconomic situation nor the impacts related to Covid will get any worse. He noted that there is an expectation that supply limitations will be less severe than they were during the quarter ending in June.
Maestri also mentioned the efforts that the company is making to make it simpler for customers to acquire the company’s products. These efforts include the global expansion of the company’s trade-in and payment installment plan programs.
In light of the current state of the economy, Apple CEO Tim Cook has stated that the company intends to “continue to hire people and invest in specific areas,” but that it will do so in a “more deliberate” manner.
The Loss From SEA Is Greater Than Expected As Consumer Spending Falls.
Sea Ltd. reported a loss that was larger than anticipated and dropped its e-commerce estimate for the year 2022, joining the ranks of other internet titans that are trying to gauge a more uncertain global economic environment.
The business with headquarters in Singapore reported a loss adjusted for interest, taxes, depreciation, and amortization of $506.3 million for the quarter ending in June, which was significantly higher than the average prediction of $482.3 million. During the pre-market trading session, the stock dropped by more than 4%.
The disappointing outcome was a direct consequence of Sea’s decision in May to reduce its forecast for full-year e-commerce revenue to a lower figure of $8.5 billion, down from the earlier forecast of $8.9 billion. Shoppers who have recently emerged from pandemic lockdowns are cutting back on their purchases made online and are instead focusing on purchasing necessities in preparation for a possible economic downturn.
Sea, which counts Tencent Holdings Ltd. as its largest investor, has had a string of setbacks this year, including the unexpected suspension of its most popular mobile game in India and the subsequent shutdown of its e-commerce activities in that country. Sea is owned by Tencent Holdings Ltd. Since reaching a high point in October, its share price has dropped by around 75%.
The company has been working hard to increase its profitability despite the fact that its revenue growth has leveled off. The growth in sales was the lowest it has been in over five years, coming in at 29% to $2.9 billion for the second quarter.
In spite of declining Ebitda (earnings before interest, taxes, depreciation, and amortization), sales for Sea Ltd. are expected to increase.
Shopee experienced a loss of less than one cent in adjusted Ebitda for each order it processed in Southeast Asia and Taiwan, prior to the allocation of headquarters’ common expenses. Forrest Li, the company’s Chief Executive Officer, has stated that the organization’s goal for this year is to achieve a positive adjusted Ebitda before HQ costs in Asia.
The quarterly report for Sea reveals that the company’s net loss has more than doubled, reaching nearly $931 million.
The revenue generated by Shopee, the e-commerce division of Sea, increased by 51% to around $1.7 billion during the second quarter, which was lower than the projections of $1.9 billion.
As the popular mobile game Free Fire continues to age, revenue from the gaming division of Garena decreased to $900.3 million, coming in slightly above of analysts’ projections for $827.6 million. Garena’s annual bookings are projected to fall for the first time ever in 2022, according to projections made public by the firm in March. These projections ranged from $2.9 billion to $3.1 billion.
SeaMoney, the digital financial services division of Sea, had an increase in revenue, reaching $279 million.
As a result of the toll that competition is taking on the company and as it focuses more on profitability, Sea has been reducing its overseas footprint and cutting jobs in businesses that are peripheral to its core operations. This represents a dramatic shift from the company’s previous strategy of investing in global expansion.
Gross merchandise value, which is the total amount of transactions that take place on Shopee’s platform, increased by 27% to reach $19 billion.
A number of investors are taking steps to lessen their exposure to sea. According to the filings with the SEC, Tiger Global Management LLC reduced its holdings in Sea by selling shares in the amount of $473.8 million after having invested in the company for six consecutive quarters. According to an investigation of its papers, Altimeter Capital Management LP sold all of its shares of Sea’s Class A-ADRs. Grab Holdings Ltd. of Singapore is one of Altimeter Capital Management LP’s shareholders.
Stocks Suffer As China Cuts Interest Rates, Sending Oil Prices Tumbling.
Despite statistics pointing to sluggish growth in the world’s second-largest economy and oil prices falling by about 2%, investors struggled to advance global markets on Monday as they processed news of an unexpected decrease in Chinese interest rates.
The outlook was also negatively impacted by weaker U.S. stock index futures and a stable currency, which hurt gold.
The MSCI all country index (.MIWD00000PUS), whose drop for the year had been reduced to approximately 13% by a month-long rebound, was scarcely firmer.
Data indicated the economy unexpectedly slowed down in July, with manufacturing and retail activity being constrained by Beijing’s zero-COVID policy and a real estate crisis. In response, China’s central bank lowered key lending rates to boost demand.
Investors have been trying to predict how far higher rates will go when the US and European central banks meet next month.
Wall Street recorded gains for a fourth consecutive week as of Friday thanks to expectations for lower rate increases and indications that American inflation may have peaked.
The Nikkei (.N225) share average in Tokyo increased to its highest level in more than seven months thanks to Wall Street advances and stable GDP data for Japan.
“China, in my opinion, has a unique circumstance compared to the rest of the globe. Because of their zero COVID policy, they have a self-imposed recession “Patrick Armstrong, chief investment officer at the Plurimi Group, said.
“If there is another leg down in the markets, I do believe the Fed will be the driving force. I believe that quantitative tightening will start in earnest in September and that it will drain market liquidity “said Armstrong.
The markets continue to suggest that there is a 50% chance the Fed will raise rates by 75 basis points in September and to a range of 3.50–3.75% by the end of the year.
The Fed will release the minutes from its most recent rate-setting meeting on Wednesday, but investor hopes that they will show the central bank starting to change its stance on rate rises may be crushed.
Armstrong disagreed, saying “I don’t think (Fed Chair) Powell would say that, and I don’t think the minutes will show that.”
The STOXX share index of 600 elite firms in Europe increased by 0.13% to 441.43 points, but it is still down by around 10% for the year.
Following advances the previous week, the S&P 500 and Nasdaq futures were both down about 0.5%.
Target (TGT.N) and Walmart (WMT.N) earnings will be closely examined for indications of waning customer demand.
Chinese blue chips (.CSI300) continued to decline by 0.13% despite the country’s interest rates being slashed, while the yuan and bond yields also decreased.
A delegation of American legislators visiting Taiwan for two days is nevertheless fraught with geopolitical risk.
With the yield curve still firmly inverted, the bond market seems to be skeptical that the Fed can engineer a smooth landing. With a two-year yield of 3.27%, it is significantly higher than the 10-year yield, which was 2.86% at the time.
The U.S. dollar has been supported by these yields, despite falling 0.8% last week against a basket of currencies as risk sentiment increased.
However, the dollar found its footing on Monday as the euro declined 0.2% to $1.02345 against the dollar after rising 0.8% the previous week. The dollar held steady at 133.51 yen after declining 1% the previous week.
According to Capital Economics senior economist Jonas Goltermann, “our belief remains that the dollar rally will continue sooner rather than later.”
Gold fell 0.8% to $1,786, giving up almost all of its 1% gains from the previous week.
As concerns about the world’s fuel consumption increased as a result of China’s poor results, oil prices decreased.
Saudi Aramco’s CEO said the company was prepared to increase output once many offshore sites in the U.S. Gulf of Mexico resume production following a brief outage last week. Saudi Aramco is the top exporter in the world.
While U.S. crude slid 1.9% to $90.34 per barrel, Brent dropped 1.8% to $96.35.
China State-Owned Giants May Delist From US Exchanges
Five of China’s largest state-owned corporations want to delist from US exchanges as the two countries struggle to agree on auditing Chinese businesses.
China Life Insurance Co., PetroChina Co., and China Petroleum & Chemical Corp. announced their delisting intentions Friday, together with Aluminum Corp. of China and Sinopec Shanghai Petrochemical Co.
The US and China have been at conflict for 20 years over American inspectors’ access to Chinese company audit work files. Negotiators haven’t reached a deal despite a 2024 deadline to shut down noncompliant enterprises. Mainland China and Hong Kong are the only two jurisdictions that don’t allow PCAOB inspections, citing security and confidentiality concerns.
As US and Chinese officials struggle to achieve a settlement, speculation mounts that sensitive Chinese companies could leave US markets willingly.
“These state-owned firms are in vital areas and may have access to information foreign regulators don’t,” said Saxo Markets strategist Redmond Wong.
The China Securities Regulatory Commission said the delisting plans were business-related.
Bloomberg Intelligence projected in May that 300 Chinese and Hong Kong companies worth $2.4 trillion risk being removed off US exchanges as the SEC raises scrutiny. China Life, PetroChina, China Petroleum & Chemical, Alibaba Group Holding Ltd., and Baidu Inc.
Uncertain if delisting will improve discussions on audit inspections, a US regulatory requirement aimed to safeguard investors from accounting frauds and other financial wrongdoing. The 2024 deadline comes from a popular 2020 bill, the Holding Foreign Companies Accountable Act.
PCAOB Chair Erica Williams said a voluntarily delisting may not stop the board from reviewing audit work papers. The PCAOB’s jurisdiction to investigate was retrospective, so the watchdog could still require work files from departing corporations, Williams noted.
If a corporation or issuer delists this year, it doesn’t matter to Williams because he wants to know if they committed fraud last year.
Alibaba joined a growing list of corporations that could be booted off American exchanges on July 29.
Alibaba stated in July it was seeking a Hong Kong main listing, joining Bilibili and Zai Lab. The switch might help corporations attract more Chinese investors and provide a model for US-listed Chinese enterprises facing delisting.
Alibaba stated in August it would aim to keep its NYSE and HKE listings.
Alibaba, Pinduoduo, JD.com, China Life, and Sinopec sank 3% in US pre-market trade. PetroChina lost 1% and Kraneshares CSI China Internet Fund ETF sank 1.8%.
China considers eight companies listed on major US exchanges to be “national-level Chinese state-owned enterprises,” according to a congressional investigation. China Southern Airlines Co., Huaneng Power International Inc., Aluminum Corp. of China, China Eastern Airlines Corp., and Sinopec Shanghai Petrochemical.
Delistings will have little impact on the companies because their New York shares are thinly traded, but they highlight rising US-China tensions, said Bloomberg Intelligence strategist Marvin Chen.
Relations between the superpowers have been tight following Nancy Pelosi’s trip to Taiwan provoked Chinese military drills near the island.
Congress may speed up the delisting deadline to 2023, adding pressure for the two parties to achieve a compromise.
The PCAOB chair declined to set a deadline for reaching a deal with Chinese officials, but said it must be soon.
China Mobile Ltd., China Telecom Corp., and China Unicom Hong Kong Ltd. were delisted from the New York Stock Exchange in January 2018 after President Trump banned investment in Chinese enterprises with military ties. Huaneng Power International plans to delist owing to poor volume and administrative complexity and costs.
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