All eyes will be on Apple (AAPL) stock today, as the company’s annual Worldwide Developers Conference kicks of in San Francisco. The largest company in the world will likely announce its foray into paid streaming music with Apple Music, a service expected to go head-to-head with industry leader Spotify.
I’m sure we’re all on the edge of our seats to hear what WWDC has to bring, but there are actually two headlines buried beneath all the WWDC buzz that are arguably more important for the AAPL stock price.
Up 40% in the past year, Apple stock isn’t particularly in desperate need of a catalyst.
Too bad — the good news just keeps on comin’.
Apple Building its Own Network
In order to protect its margins, improve its efficiency and control every little piece of the customer experience it can, AAPL is making moves to build its own network and data centers, according to Bloomberg.
By custom-designing its own networks and servers, AAPL won’t have to lean on companies like Amazon (AMZN) to power its cloud services. This move will bring costs down in the long term, plus it’s a smart business move — Apple will no longer rely on a direct competitor like Amazon to make its cloud content run smoothly.
With Google (GOOG, GOOGL), Microsoft (MSFT), and Facebook (FB) all adopting similar strategies, the competitive environment all but demands AAPL bring some of these projects in house.
FB alone has saved $2 billion in the last three years with this very approach. In other words, Facebook, which has revenue of $25.4 billion in the last three years, reduced costs by 7.9% of revenue over that period.
If Apple can mimic those cost savings, by fiscal 2016 it’ll be saving more than $19 billion a year — or nearly half its net income in FY2014 — based on consensus revenue expectations.
Higher-Than-Expected iPhone Sales
The second immediate catalyst for the AAPL stock price is iPhone sales, which analyst Chris Caso of SIG Susquehanna Financial Group expects to come in above consensus in the current quarter. Previously looking for iPhone sales of 42 million in the period, he now sees Apple shipping 50 million iPhones on stronger-than-expected demand.
While iPhone sales may not be as sexy as Apple Music, an Apple TV or an Apple Car, they’re still the company’s biggest cash cow by a very wide margin. In Apple’s last quarter, iPhone sales accounted for a whopping 69.4% of overall revenue.
Susquehanna’s Caso slapped AAPL stock with a $155 12-month price target in light of these new projections. Given Apple’s stubborn tendency to exceed even the most far-fetched analyst forecasts, that estimate may actually prove conservative.
As of this writing, John Divine was long shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
