Daily Brief - Apple's Regulatory Reckoning

TLDR: Amidst increasing regulatory scrutiny, Apple Inc. finds itself in turbulent waters. A significant drop in stock value, coupled with legal challenges in the United States and Europe, signals a testing period for the tech behemoth.

The Department of Justice's recent lawsuit casts a shadow over Apple's future. Accusing the company of employing anti-competitive practices to bolster its "astronomical valuation," the U.S. government is considering drastic measures, including the possibility of breaking up the tech behemoth.

This legal action targets Apple's expansive ecosystem, including the iPhone, Apple Watch, and lucrative services, suggesting a comprehensive examination of the company's market dominance.

Across the Atlantic, European regulators are probing the company's compliance with the Digital Markets Act (DMA), a comprehensive regulatory framework designed to rein in the market power of large tech platforms.

These investigations could focus on various aspects of Apple's operations, including its App Store fees, terms, and conditions for developers. With the DMA enabling the European Commission to impose fines of up to 10% of a company's total annual worldwide revenue, and even 20% for repeated infractions, Apple faces significant financial risks.

This wave of regulatory attention has not only eroded Apple's market value by $113 billion in a single day but also raised alarms about the future of its market dominance.

Market Movers: When Apple stock falls:

Here is the historical 1-month impact on Apple's peers when its stock has previously fallen 12% in a quarter:

Top 3 Performing Assets:

1. Spotify Technology ADR: 10.40% return
2. Netflix: 7.80% return
3. Sonos: 4.67% return

Bottom 3 Performing Assets:

1. Garmin: -0.87% return
2. Sony Group ADR: 0.00% return
3. HP: 1.07% return

Asset Spotlight: Netflix's rising valuation

In the last 4 instances when Netflix's valuation indicators rose, analysis from Toggle indicated a median increase in the stock's price over the next 3 months.

A KeyBanc analyst maintained an Overweight rating on the stock, boosting the target from $580 to $705, due to robust subscriber trends showing a 2% growth early in the year, and a notable rise in Netflix app downloads and search interest.

Earnings Update: Carnival reports next week

In its last reported quarter, Carnival surpassed analysts' expectations by reporting an EPS of -$0.07, beating the consensus estimate by $0.06. The company also reported revenue of $5.40 billion for the quarter, exceeding the consensus estimate of $5.29 billion and marking a significant year-over-year increase of 40.6%.

For the upcoming earnings report, the consensus for EPS ranges from a low of -$0.22 to a high of -$0.11, averaging at -$0.17. These estimates reflect expectations for Carnival's performance as it continues to navigate the post-pandemic recovery of the travel and leisure industry.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.