Apple Inc. (NASDAQ:AAPL) is still a “disruptor” in the minds of many investors. After all, AAPL stock is up more than tenfold in 10 years, and the Apple iPhone is in many ways the definitive smartphone on the market.
But in recent years, Apple hasn’t really earned that label. In many ways, AAPL stock has become one of those boring mega-cap companies that are a fixture on Wall Street — yes, they show plenty of stability, but little in the way of fireworks.
In many ways, AAPL stock is just relying on a constant upgrade cycle to power its growth. And looking ahead to 2016, the reality is that this rather uninspired approach to growth will continue.
Here’s why investors who are expecting big things out of Apple may be disappointed in the new year:
iPhone Nearing Critical Mass … Sure, Apple Inc. supersized the iPhone in 2014 and then pulled off its first same-day launch in mainland China with its iPhone 6S in 2015. But now that pent-up demand for a bigger screen is sated and launch demand has been pulled forward in Asia and every other major geographical area, Apple is now wholly reliant on actual iPhone sales growth.
… But iPhone Still Biggest Driver of AAPL Stock: Producing big iPhone growth is no easy task, considering a staggering 231 million iPhones were sold in fiscal 2015. Still, Apple stock holders can’t rely on any other segment picking up the slack considering the $155 billion in total iPhone sales last year was more than two-thirds of the $233 billion in AAPL’s total revenue.
Apple Cash Isn’t a Catalyst: Of course, one way to supercharge the business would be to inject a sexy new arm via an acquisition or merger … but despite the breathless headlines about an Apple buyout of Box Inc (NYSE:BOX) or GoPro Inc (NASDAQ:GPRO) or whatever other tech stock, the sad reality is Apple doesn’t have quite the cash some think it does. On paper, AAPL does boast $205 billion in cash and investments, but almost 90% of that is overseas and subject to massive repatriation taxes if and when Apple Inc. uses that money within the U.S. Now, Apple could do what it did with Beats and purchase a smaller company for a few billion dollars in cash instead of tens or hundreds of billions … but as mentioned before, an extra $1 billion or so in revenue is not going to take the pressure off the iPhone in 2016. That gets AAPL stock holders nowhere.
Pet Projects Are Long-Term Bets at Best — Distractions at Worst: So if you can’t buy your way to success and you’re all-in on the iPhone, what do you do? Well, you tinker at the periphery. That’s what Apple has done with its Apple Pay initiative, and with Apple Music. The theory is that once these services spin up, they will throw off reliable revenue and provide a good baseline for AAPL stock. However, that’s a very long-term strategy at best — and at worst, distracts the company from efforts that are more necessary to juice performance of the crucial iPhone segment.
Look, I know it’s dangerous to bet against Apple stock or to say the iPhone cannot grow anymore. Naysayers have been repeatedly proven wrong on both fronts.
But the reality is that if you’re expecting a massive buyout or a big new product to move the needle in 2016, you misunderstand the fundamentals of Apple Inc.
The iPhone remains king, and investors in AAPL stock have to acknowledge they are basically all-in on that smartphone’s success.
Time will tell whether that bet proves good or bad in the new year.
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.
