AAPL stock is still very much dependent on the smartphone line to drive its success, with roughly two-thirds of sales coming from the iPhone, but the latest device launch seemed to meet investor expectations.
Going forward, however, Apple stock investors will be closely watching China to gauge the future of this tech giant. Because AAPL isn’t just betting big on hardware in Asia, but also on software and services.
Here’s why Apple stock investors need to pay close attention to China in 2016.
Apple Needs China iPhone Sales
AAPL stock saw its Greater China sales surge by 84% in fiscal 2015, to $58.7 billion — more than a quarter of total revenue, making the region its second biggest segment by sales.
Click to Enlarge If Apple sees a similar growth rate, China will be just a hair behind the all-important Americas segment at the end of fiscal 2016.
But that is the big question, of course. Will AAPL stock see continued 80%-plus expansion in China, or will it drop off?
This summer, tech research firm Canalys noted that Apple slipped in China market share, putting it in the No. 3 spot where it has stayed behind rivals Xiaomi and Huawei, both of which use the Android operating system from Alphabet (GOOG, GOOGL). So while the growth in China is still impressive, you have to wonder if that’s going to keep up as competitors continue to gain broad appeal.
If Apple stock is mostly driven by the iPhone and this smartphone’s sales are mostly driven by China growth trends, it’s reductive but very true to say that AAPL stock investors need only watch China sales of the iPhone to know what’s up with Apple in 2016.
Apple Pay in China Represents Services Push
As for the long-term, there also is a push in China to get users into the Apple software and service ecosystem along with their hardware sales.
Last year, AAPL stock rolled out an ambitious mobile payment service called Apply Pay. The service was launched supporting the three major credit and debit card companies — American Express (AXP),MasterCard (MA) and Visa (V) — and was supposed to be much more than just a gimmick or a niche tool for techies.
This will not move the needle in the near-term because, as stated before, the iPhone is king. But long-term, investors need to look beyond Apple hardware and see if software and services will throw off regular cash without the need for an upgrade cycle.
That’s a tall order, however, given the fast-moving landscape of mobile payments. Will Apple Pay fend off competitors including PayPal (PYPL) and Square Inc. (SQ)? Will Chinese upstarts unseat AAPL before it even gets started?
These are all important questions to answer. And the future of not just Apple Pay but all AAPL services could be at stake based on how this tech company executes in China, and whether or not it can connect with consumers there quickly.
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 firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.