Apple could get $8B tax bill from European Commission, according to Bloomberg report
Apple shares have been diving since late last year, even before the markets began to fall, as some investors worry that their favorite company may report bad news later this month
There are becoming scary times for Apple investors. Shares of the tech giant are now trading below $100 for the first time since August of 2014, and now Bloomberg says the company could get hit with a hefty tax bill from the European Commission.
“The world’s largest company could owe more than $8 billion in back taxes as a result of a European Commission investigation into its tax policies, according to an analysis by Bloomberg Intelligence,” Adam Satariano wrote today. “Apple, which has said it will appeal an adverse ruling, is being scrutinized by regulators who have accused the iPhone maker of using subsidiaries in Ireland to avoid paying taxes on revenue generated outside the U.S.”
Apple has plenty of cash to pay any tax bill, of course. The company has over $200B in cash, much of it stowed away in Europe.
Apple shares have been falling with the market since the first of the year. But as you can see from the chart, shares have been falling since before the market overall started to decline at the end of last year.
One issue is that investors now think that iPhone sales are lagging, and worry that when Apple reports earnings to January 26 they may, for the first time in a long time, report a miss. Few think that the introduction of the iPad Pro will help tablet sales, either.
Of course, that doesn’t mean Apple is doomed – we’ll leave that to BusinessInsider, who has made a business out of saying Apple is a goner (then reporting its record earnings). But there are clearly issues. Developers are not happy, at least not the ones I talk to, who continue to complain that Apple does not communicate with them. And whether Apple knows it or not, few publishers trust the company anymore after it first destroyed the Newsstand, then closed it, launched Apple News, then apparently gave up on it before the year was out.
But the biggest problem Apple may face going forward is one not necessarily of their own making, at least not directly. The iPhone was built on the two-year contract model. Buyers got their first iPhones, then upgraded after two years. New buyers came in regularly, but Apple could count on their customers to return within two years to upgrade their device.
Not only is the two-year contract going away in the US, but the smartphones launched today are not that different from the model launched two or three years ago, so why upgrade, especially if it will lead to an increase in your phone bill (or a big deduction from your savings account).
Apple reported 74.5 million in iPhone sales in the final quarter of 2014 (Apple’s Q1 2015), that is certainly a very big mountain to climb a second time.
Having said all that, many portfolio owners may begin buying Apple stock. It is certainly a better value these days, and even if Apple earnings disappoint, the company remains the most profitable company in the world. Plus, the company’s stock has a low P/E ratio, three times lower than Microsoft, for instance. That is why analysts are split on their opinion of the stock, with some predicting the share price will fall below $80 soon, while others are recommending their clients buy on the price dip.