Apple Inc. (AAPL) CEO Tim Cook is going to China later this month, and anyone who owns AAPL stock should care about how that trip goes. The mission? To lobby the Chinese government to take it a little easier on the Cupertino, California-based giant.
In April, China abruptly took Apple’s book and movie services offline. Hence Cook’s plan to speak with senior officials in the propaganda department.
China is an increasingly important part of the thesis for AAPL stock, and you can be sure investors are a little freaked out about the slowdown over there — and the censorship, of course.
Apple Stock: In Need of a Catalyst
Apple is in desperate need of a catalyst right about now. In fact, if there’s any way Cook can leave for China today instead of the end of the month, shareholders would certainly appreciate the gesture.
With AAPL down 11.5% in 2016 and 25% in the last year, they need something to applaud. For a while there China was the reason to celebrate; it promised to be the company’s new growth catalyst.
But after last quarter’s absolutely miserable results, which saw Apple post its first quarter-over-quarter revenue decline since 2003, AAPL stock owners aren’t so sure about China, which now accounts for 25% of the company’s sales.
Apple’s revenue in China fell 26% year-over-year, the worst percentage decline of the five geographic operating segments, and twice as severe as Apple’s 13% slump in revenue overall.
Of course, that weakness didn’t go unnoticed, and the concerns went as far as Apple’s earnings call, where Tim Cook’s language was analyzed and deconstructed in a way only Federal Reserve chairs can identify with.
Days after the call, Jim Cramer tore Cook apart in a face-to-face interview on live TV for not emphasizing positive Chinese demographic trends on the most recent earnings call. The Mad Money host, who said Apple stock owners were really concerned about China, took the omission to imply Apple was less sanguine about opportunities in China.
Cook denied the claims, and said he remains as bullish as ever on China, in the “long term.”
But at least one major shareholder isn’t convinced. Billionaire activist investor Carl Icahn recently made waves by announcing he had totally liquidated his position in AAPL, which he rode for years and made billions on. The main reason he sold? Concerns with China’s overzealous government.
Apple isn’t the only mainstream blue-chip name threatened by recent Chinese censorship. Walt Disney Co (DIS), too, is concerned, and CEO Bob Iger met with President Xi Jinping Thursday to discuss the sudden decision by Chinese authorities to pull the plug on its streaming service, DisneyLyfe.
At the end of the day, if Apple wants access to China, it may have to compromise and agree to certain amounts of censorship. That very issue is what drove Alphabet Inc (GOOG, GOOGL) subsidiary Google out of the country years ago, as the search giant refused to comply with the restrictive demands.
From a shareholder perspective, it’s much better for AAPL stock owners if Cook plays nice with China. From a human perspective, it’s a shame that American companies are complicit in the suppression of Chinese citizens’ freedom.
But if you own Apple shares and you want to see them go higher — that’s an outcome you almost have to root for when Cook visits the country at the end of May.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
