Nobody can argue that Apple (AAPL) is one of the most innovative companies ever. Apple completely changed the game with the Mac computer (1984), iPhone (2007) and iPad (2010), but over the last few years, competitors stepped up, products and industries matured and Apple’s growth rates slowed from out of this world to merely strong by most standards.
Apple was a victim of its own success. Apple simply could not have maintained its astronomical growth rates, but once a stock is priced for that kind of growth, any slowdown — no matter how reasonable and expected — is sure to disappoint investors. AAPL dropped from $100 a share (split adjusted) in 2012 to under $60 last year as investors wondered if and when they would see the “next big thing.”
So, after Apple’s latest reveal, did we see it?
I wouldn’t go that far. The Apple Watch looks cool, but I don’t see it coming anywhere near matching the success of the iPhone or iPad. However, when you add in the next-generation iPhones as well as the introduction of Apple Pay, you have enough to jumpstart sales and earnings growth — certainly not to previous levels but enough to move AAPL stock higher, which puts AAPL back on my radar.
Substantially Improved iPhones
Larger screens are what people want. So, when you give those to the loyal Apple customer base, you have an important growth driver.Yes, Apple was late to the party with the larger screens, but Apple will undoubtedly still generate strong sales with the iPhone 6 — especially considering the huge number of current iPhone users who waited to upgrade. I saw a recent survey from 9to5Mac in which 80% of respondents said they would likely upgrade to the iPhone 6.
Plus, the iPhone 6 Plus has an even larger screen (5.5 inches) and carries a larger price tag, meaning more revenues. There had been talk of a sapphire screen on the iPhone 6 and iPhone 6 Plus, but that would have resulted in higher manufacturing costs. So, the absence of sapphire in this iteration likely means better margins for Apple.
New Service in Apple Pay
Apple Pay has potential, and a new iPhone without NFC (near field communication) would have been more of a disappointment. Apple Pay looks easy to use, and Apple has already recruited good participation from payment processors and merchants. Many reports say that Apple will get a cut of transactions through the service, which would be nice high-margin revenues.
Don’t underestimate the security aspect of Apple Pay either. Headlines about credit card breaches are common, and if Apple Pay can truly make the process more secure (with its fingerprint reader) and more convenient, it’s a big step forward in the game-changing trend toward a cashless society.
New Product in Apple Watch
The Apple Watch won’t even hit the market until 2015, and the immediate reaction has been mixed. As I already said, the Apple Watch looks cool, but I don’t expect it to rise to “must have” status — at least not right out of the gate. Still, the Apple Watch is innovative enough to generate sales in an area companies are striving to monetize: wearable technology.
Of course, all of these new products bring and keep folks in Apple’s ecosystem, which adds to sales and profits.
I’ve been very cautious on Apple the last few years. AAPL went from a high growth stock to what some people considered a value stock, and now AAPL stock is more in the middle. The Apple insanity has faded, and you can now get higher growth at a reasonable valuation. I would put AAPL in the Growth At a Reasonable Price (GARP) category, and that’s enough to get me interested in AAPL again.