Apple Car Boondoggle Will NEVER Drive AAPL Stock

Advertisement

Apple Inc. (NASDAQ:AAPL) has a cult following that makes it very difficult to get rational about its future products. So it’s no surprise that activist investor Carl Icahn has found no shortage of believers in his recently-shared hopes for AAPL stock to soar as it becomes a dominant player in HD televisions, automobiles and solar-powered ice cream scoops.

aapl stock news AAPL Stock   Just Forget About the Apple Watch Already!OK, I made that last one up. But my point is simply that expectations and hype rarely jibe with the reality of AAPL stock — and thanks to the internet rumor mill, things often get out of control in a hurry.

So while some may scoff at the obviously incongruity of a solar-powered ice cream scoop in the AAPL product catalog, the do-no-wrong attitudes around Apple sometimes lead investors to think that other reaches are sure things … even if they, too are misguided.

Apple iPhone Sales are Everything

I get on my soapbox a lot — most recently regarding the Apple Watch — when tech investors start musing about the big potential of new Apple products.

Because any serious investor knows that Apple is still driven almost wholly by the iPhone, with the iPhone accounting for $40.3 billion in net sales last quarter. For you AAPL stock holders out there who need some perspective, that means almost 70% of Apple’s $58 billion in total revenue came from the gadget (up from 57% a year ago).

So if Apple can’t keep up brisk growth for its iPhone, there’s nothing that will fill the gap — not watches, not cars, not ice cream scoops.

The iPhone is a killer, no doubt. But if you think Apple unquestionably has another one of those things up its sleeve, you’re making a very risky bet.

And no, the Apple Watch doesn’t add up. A million units at about $550 a pop is an initial launch of $550 million, and the 30 million units across the next year will tally $16.5 billion — big numbers for any other company, but not when you consider AAPL stock did $74.6 billion in sales last quarter and will finish the fiscal year with about $226 billion in sales.

Or percentage-wise, the Apple Watch launch at 1 million units would have accounted for just 0.7% of revenue last quarter.

This kind of focus isn’t an oddity at Apple. Take Google Inc. (NASDAQ:GOOG) and Facebook Inc. (NASDAQ:FB), which both make headlines with cute side projects but remain beholden to advertising above everything else when it comes time to report earnings.

Why should we expect anything different from Apple? And why should it be bad thing to be reliant on “just” the wildly successful iPhone?

AAPL Stock Execs Have Done the Math

The Silicon Valley gadget powerhouse is sometimes, and rightly, deliniated between the leadership of Steve Jobs and the leadership of Tim Cook; the former was an innovative genius, and the latter is a true business executive focused on management and execution.

To be clear, this is not to say Cook is an inferior CEO — if anything, his job is just as hard as Jobs’ only much different given that his predecessor set the bar incredibly high on product launches and now Apple has to scramble to figure out launch logistics and supply chain operations.

Tim Cook still finds himself face-to-face with overly optimistic “guesstimators” each quarter who can’t seem to match consumer demand trends with the reality of production and delivery.

Surely the execs at Apple have done the math on things like the an Apple TV — and after logical deliberation, dropped the project to focus on what really matters to customers and the bottom line.

The point isn’t that some consumers would salivate over a $3,000 Apple TV or a $80,000 Apple car or an $80 solar-powered Apple ice cream scoop.

The point is that AAPL stock is driven by its current product line that is wildly successful and wildly complicated to keep moving. Sacrificing this success in pursuit of boondoggles jeopardizes the continued dominance of the iPhone and even the continued success of AAPL stock in the long term.

It may sound counterintuitive, but innovation isn’t necessarily the solution for Apple right now. It has its hands full just shipping nearly 62 million iPhones each quarter … and can’t afford to chase Carl Icahn’s ill-advised dreams.

Or any other shareholder’s, for that matter.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/aapl-stock-carl-icahn-apple-car/.

©2024 InvestorPlace Media, LLC