After a year where Apple (AAPL) grew revenues by almost 28%, it appears that the company’s growth days are behind it.
In its fiscal first quarter, revenue increased only 1.7%, and based on guidance, second quarter sales will actually decline by double digits. Forex issues in Europe and an economic slowdown in China and Japan are causing a nightmare for the world’s largest company.
And that’s why success in India is no longer a luxury; it is a necessity for the sake of Apple stock.
Why India Is Important for AAPL
India is the world’s second-largest market, with more than 1 billion residents, second only to China. It is also expected to become the world’s fastest-growing large smartphone market, with shipments topping 115 million last year and expected to reach 174 million in 2017.
AAPL may be the world’s most valuable company, with a solid footprint in China, Europe, and the U.S. among other large economies, but its market share in India is estimated at just 2%. Granted, AAPL has been doing its part to try and grow its market share in India.
Up until now, AAPL had lacked a retail presence in India, but has since established new partnerships to sell its products in 12 large Indian cities at 500 retail locations. And for Apple’s sake, I sure hope this works to make the company relevant in India.
India Is Important for Foreign Exchange
As previously mentioned, AAPL is on pace for its first double-digit revenue decline in the iPhone era during this upcoming quarter. The effect is a 5% decline in Apple stock, and the reasons for the decline are evident.
First, AAPL is no longer growing in the Americas, with sales declining 4% during the quarter. Apple creates almost 40% of its revenue from the Americas. Its revenue growth of 14% represents a significant decline from quarters past, as does its 4% growth in Europe, 12% decline in Japan and a 4% increase in the rest of Asia-Pacific.
Here’s the catch: Revenue growth excluding forex increased 18% in Europe and 19% in the rest of Asia-Pacific. That means exchange rates are killing AAPL, and Apple stock. If not for forex, AAPL would have grown revenue 8% instead of 2% in the quarter, and the story for Apple stock would be much different.
Meanwhile, forex in India isn’t as big of an issue. Since the start of 2014, the Indian Rupee has converted to U.S. dollars at a rate of 0.015-0.016 per dollar, whereas the euro has gone from being 40% more valuable than the U.S. dollar to just 9% right now. Thus, Apple needs India for its growth outlook as well as the stability in its currency, which could very well strengthen as the region grows larger.
AAPL Stock Rests on India
Collectively, it is clear that Apple needs India, and it is just as clear that Apple stock needs India, too. Without success in India, it is hard to find a catalyst large enough to drive revenue and profit growth, not unless AAPL innovates and creates the next iPhone or iPad product category.
The bottom line is that Apple’s most recent earnings report showcased the reduced demand that so many analysts have been forecasting for months. Given that Apple stock trades at just nine times this year’s earnings, there’s not really a ton of downside if AAPL fails to penetrate India, but it does not lack great upside either.
For Apple stock to go higher, the company needs growth, and that growth will only come from India.
As of this writing, Brian Nichols was long AAPL.
