By most accounts, the future looks bright for Apple Inc. (NASDAQ:AAPL). Citi recently upped its price target on Apple stock in anticipation of a massive wave of upgrades from iPhone owners who have aging models, and the company’s plans to double its high-margin service revenue over the course of the coming four years doesn’t seem un-doable.
After all, AAPL has been beefing up its app and digital content business at a rather brisk pace for some time now.
And yet, to observers not looking at the company through rose-colored glasses, there’s potential trouble ahead. Here’s a closer look at three headwinds that could slow AAPL shares down more than most traders might expect.
Three Troubling Realities for Apple Stock
Last week, analysts with Citi raised their price target on Apple stock from $140 to $160 per share (maintaining the research outfit’s “Buy” rating), thinking a wide swath of the 715 million iPhone owners out there right now are on the verge of finally upgrading their device, as 31% of those owners haven’t upgraded in a couple of years.
It’s not bad logic; we know the company’s best new customers are its old ones.
Meanwhile, though it was little more than an afterthought just a year ago, CEO Tim Cook has put plenty of emphasis on sales of services and digital content. He’s only scratched the surface, however. After generating roughly $25 billion in revenue in 2016, Apple is aiming for $50 billion in services revenue by $50 billion. That’s still only a fraction of the $215 billion worth of revenue Apple mustered in 2016, but digital sales now make up the company’s second-biggest segment; the iPhone is still the biggest.
Before we pop the corks on the champagne bottles though, there are three red flags everyone would be wise to process.
1. The iPhone 8 (probably) costs too much
While the launch of the iPhone 7 in the fall of last year could be considered a success in that the company sold a record-breaking 78.2 million units in the previous quarter, given the hype surrounding the device, the company should have blown away sales figures for its iPhone 6.
Some (many) suspect the demand that should have materialized for the 7 was ultimately displaced to the iPhone 8, which is supposed to be unveiled in September of this year. The word is that the admittedly impressive device is going to go for a cool $1000 each. At that price, even the most loyal of Apple fans could balk.
2. The popular smartphone is preemptively cannibalizing itself
Aside from sticker shock, would-be owners of the upcoming iPhone 8 may keep their wallet closed for the same reason many potential buyers of the iPhone 7 didn’t pull the trigger — they’re waiting for the phone after the next phone, which is sure to be even more amazing.
To that end, what’s currently being referred to as the iPhone 9 already promises (in rumors) to be an amazing piece of hardware, complete with a folding screen. That may postpone purchases of the iPhone 8 later this year, though 2018’s iPhone 9 could see softer demand because whispers of the iPhone 10 rumors will be circulating by then.
It’s a vicious cycle, with Apple arguably unable to ever really log a blowout iPhone launch.
3. The Google Pixel is really, really impressive
Finally, as solid as the recent Pixel phone from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) subsidiary Google was, it wasn’t a game-changer. Analysts estimate the company only sold about 2.5 million of the device.
Bear in mind, however, this is Google’s first direct foray into the smartphone world, and could be considered little more than a dry run. The Pixel 2 is slated to debut sometime this year, and it’s a good bet the company has made a point of learning a lot with its first outing.
Bottom Line for AAPL Stock
Invariably, some (or several) owners of Apple stock interpret these concerns as a call that the company is doomed, and then proceed to “colorfully disagree.” So, let me clarify something that shouldn’t need saying. That is, even on AAPL stock’s worst day it’s still essentially unstoppable to other smartphone players. Don’t read too much into the worries.
On the flipside, in that Apple stock is all too often found on investors’ pedestals — lifted there by assumptions that the company is infallible — it’s never a bad idea to recognize all plausible risks. These three risks could each end up stirring up surprising headwinds, and nothing takes a toll on a stock like an unexpected disappointment.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
