Apple Inc. (AAPL) stock could use a catalyst right about now. Shares have been languishing in the mid-$90s for most of the year, down 25% year-over-year.
And as you might have heard, the company is currently embroiled in a deep controversy with none other than the Federal Bureau of Investigation itself.
Long story short, the Feds are coercing Apple into building a “backdoor” into the iPhone of one of the San Bernardino terrorists.
With sales of its flagship iPhone up a pitiful 1% year-over-year last quarter — unit shipments were actually up 0% — AAPL could use some good press. It’s not getting it.
New numbers from IDC show that the Apple Watch — the only new product line that CEO Tim Cook has been able to produce since he took the reins from Steve Jobs in 2011 — was an extremely disappointing holiday seller. I hate to say I told you so, but I totally did. I knew the Apple Watch wouldn’t do a thing for AAPL stock from the minute it was released. Last April, I called it “a largely redundant and unnecessary accessory to the iPhone,” and warned that:
“The not-so-subtle underlying point is that all this Apple Watch hoopla has made AAPL stock — dare we say it — overvalued.”
I caught a lot of flak for that article from readers. C’est la vie. Less than a year later, Apple shares sit 25% below where they did at the time of my piece, which, needless to say, I still stand by.
AAPL Shareholders: Ignore the Apple Watch
The IDC estimates that Apple moved 4.1 million smartwatch units in the holiday quarter. While that was good enough for the No. 2 spot in the wearables market — Apple had 15% market share to Fitbit’s (FIT) 29.5% share — it actually was a horrible showing.
That’s because the quarter before, Apple moved an estimated 3.9 million units, implying sequential growth of just 200,000 units, or 5.1%. The holiday quarter is supposed to be a much bigger quarter than the third quarter of the calendar year, and a 5.1% increase in an allegedly hot new product like the Apple Watch is blatantly disappointing.
Still in denial? There are a few metrics that will help you really grasp why Apple stock owners should disregard the Apple Watch entirely when thinking about the company’s future drivers. First off, Apple’s company-wide sequential revenue was up 47% in the holiday quarter from the quarter before. Kind of dwarfs 5%, doesn’t it?
What’s more, it hasn’t even started breaking out revenue for the Apple Watch yet. That tends to happen when sales are miserable, and revealing shipment numbers would only incite ridicule.
The second metric that should make AAPL stock investors see the light? 2.7%. That’s the percentage of overall Apple revenue, using liberal estimates, that Apple Watch accounted for last quarter. I’ll quickly run through my math.
Last summer, analysts estimated that Apple Watch garnered an average selling price of between $450 and $500. Generously assuming the $500 ASP, the 4.1 million unit sales would bring in $2.05 billion in revenue. Or 2.7% of the $75.87 billion in revenue Apple did last quarter.
In other words, the Apple Watch has never been relevant, and it still isn’t. Tim Cook needs to come up with an original product soon or watch the stock continue to fall.
As of this writing, John Divine was long shares of FIT stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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