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How might a privacy dispute affect Apple and Facebook’s share prices?

Since the start of the year, Apple’s [AAPL] share price is up 56.24% (through 9 September). While it jumped 109.16% from its March sell-off closing low of $55.84, it has suffered setbacks in recent days as part of a wider tech pullback.

Apple’s share price is up 22% since its Q3 2020 earnings call on 30 July, during which it announced a 4-1 stock split. The stock price quickly pushed past the $400 mark, and rose above the $500 mark (since adjusted) on 24 August. 

As of 9 September’s close, however, Apple’s share price was down 12.57% since the start of the month.

 

 

Meanwhile, Facebook’s [FB] share price is up 30.48% year-to-date, and 99.6% since its 52-week low of $137.10, to which it fell on 18 March.

Facebook, like Apple, suffered at the start of September — falling just short of 7.35% to close at $273.72 on 9 September.

Meanwhile, a dispute between the two FAANG companies threatens to beat down one, if not both, of the stocks. 

Apple and Facebook have been butting heads over a proposed change to the way the smartphone giant obtains personalised data for targeted advertising. Last week, Apple announced the plans have now been delayed till early 2021, to give developers time to prepare — but what could these changes mean for share prices?

 

 

Needing permission

Facebook has taken issue with Apple’s proposal to allow users of iPhones that will support the upcoming iOS 14 software update to decide whether or not they want to be tracked. Under the proposed move, apps will ask users whether they give permission for companies to track them with Apple’s ID for Advertisers (IDFA). Facebook has argued that if Apple were to go ahead with this, advertising revenue could be slashed by up to half. 

The social media giant is heavily dependent on advertising. Total revenue for Q2 2020, which ended in June, was $18.687bn. A whopping 98% of this ($18.32bn) came through advertising. Although this was a 10% increase year-over-year, it marked another quarter of slowing revenue growth in this segment.

$18.687bn

Facebook's total Q2 revenue - 98% came from advertising

 

The first quarter of fiscal 2020, which ended in March, saw a 17% year-over-year increase in revenue to $17.74bn. The fourth quarter of fiscal 2019 saw revenue of $20.74bn, which marked a 24% increase from Q4 2018. 

Much of this slowdown can be blamed on the coronavirus pandemic and the resultant drop in spend on advertising. The situation has been compounded by hundreds of businesses and brands pulling their adverts following pressure to boycott the social media network in protest at how it handles — or fails to handle — hate speech.

While investors don’t appear to have been fazed by the boycott and slowdown in revenue — Facebook’s share price reached an all-time high of $304.67 on 26 August — some analysts are concerned that Apple’s proposed privacy change could spell bad news for the social media giant.

As reported by MarketWatch, Morgan Stanley analysts wrote in a note: “While [the boycott] is only a near-term issue (and we expect the boycott advertisers to eventually come back), this flatter recovery slope combined with IDFA uncertainty in Q4 may create tactical pressure on shares.”

“While [the boycott] is only a near-term issue (and we expect the boycott advertisers to eventually come back), this flatter recovery slope combined with IDFA uncertainty in Q4 may create tactical pressure on shares” - Morgan Stanley analysts

What about Apple?

Among the 48 analysts on MarketBeat, the consensus was to Buy Facebook stock, with 42 holding this rating. Four believe the stock is a Hold, while one rates it a Sell and one a Strong Buy.

Meanwhile, the impending launch and release of the iPhone 12 has some analysts bullish on Apple. Daniel Ives, analyst with Wedbush Securities, has raised his price target from $515 to $600. He had also set a “bull case“ pre-split target of $700. 

Ives believes many on Wall Street are underestimating the “pent-up demand” for the new iPhone, which will be 5G-enabled and will be the catalyst for a “super cycle”. 

“Apple has a once in a decade opportunity over the next 12 to 18 months as we estimate roughly 350 million of [its] 950 million iPhones worldwide are in the window of an upgrade opportunity,” wrote Ives in a note to clients.

“Apple has a once in a decade opportunity over the next 12 to 18 months as we estimate roughly 350 million of [its] 950 million iPhones worldwide are in the window of an upgrade opportunity” - Daniel Ives, analyst with Wedbush Securities

The consensus among 46 analysts polled by MarketBeat is to Buy the stock, a rating held by 27, while 15 rate it a Hold.

But the firm is facing some tough decisions in the near-term.

As well as the privacy battle with Facebook, Apple is currently embroiled in another corporate dispute with Epic Games. The games developer disagreed with the App Store fee structure (it reportedly takes a cut of up to 30% on all in-app purchases). This first resulted in its most popular game, Fortnite, being removed, before Epic Games terminated its App Store account altogether on 28 August. Microsoft [MSFT] and Spotify [SPOT] have thrown their support behind Epic Games.

If either of these situations escalates further, Apple may find itself having to backtrack.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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