Apple Inc. (NASDAQ:AAPL) is coming off a busy week. First, Apple’s quarterly earnings report Wednesday sent AAPL stock lower on Thursday. Later that day, the company hosted its special Mac event.
Traders hoping that Apple stock would get some juice from the news were sorely disappointed. Apple announced three new notebooks. Tech enthusiasts now have something new to blog about.
The market didn’t care.
AAPL stock delivered its highest daily volume in over a month on Wednesday following earnings. On Thursday, the stock traded mostly flat throughout the day before closing down less than 1% on average volume.
The reason the event got crickets in the market? Macs don’t matter when it comes to Apple stock.
These are the only three things that do:
#1: iPhones Matter
Until Apple’s dynamic changes, it doesn’t matter how many new gadgets or new versions of old gadgets the company comes up with. The iPhone dominates Apple’s business. As of Q3 2016, the iPhone single-handedly represented 56.7% of Apple’s total revenue. The Apple Watch, the iPad and even the new Mac notebooks are cool. But all of them combined still generate about half the revenue the iPhone does.
In fact, the saturation of the iPhone market is one of the biggest arguments that AAPL stock bears have been making for years.
Apple actually beat consensus earnings and revenue expectations in Q4, yet the stock sold off. Last week’s report revealed iPhone unit sales were down 5.3% year-over-year in Q4, and iPhone sales revenue plummeted 12.6%. These are the numbers that truly concern the market.
It certainly doesn’t help that the iPhone’s market share in China has fallen from around 12% to only 8.4% in the past year as well.
#2: Service Revenues Matter
While Apple stock bears point and scream at iPhone numbers, bulls are doing the same for the Services division.
Services revenue includes the App Store, iTunes, Apple Music, Apple Pay, AppleCare and other services. Division revenue jumped 24% in Q4. This segment now make up 14.1% of Apple’s total revenue, up from 10.4% a year ago.
The Apple Pay platform, for example, registered more transactions in the month of September than it did during the entire fiscal 2015 year.
CNBC analyst Jim Cramer believes services are the key to AAPL stock as a long-term investment. “To me, once again, the exceedingly profitable revenue stream is the one to watch, and it’s still being relatively ignored, despite its 24 percent growth to $6.3 billion, and despite the naysayers’ comments,” Cramer says.
The market wants growth from Apple, and the services segment seems to be the most likely long-term source at the moment.
Major New Products Matter
Apple is notoriously secretive about its R&D. But there is widely held speculation that Apple’s next major new product wildcard will be a driverless automobile.
Apple may already be laying the foundation for an iCar launch in China. Earlier this year, the company invested $1 billion in Chinese ride-hailing company Didi Chuxing. AAPL might be backing this Uber-esque Chinese company to help establish a market for is coming fleet of cars.
Apple has gotten a lot of heat for its ever-growing $237 billion cash hoard. But, as Tesla Motors Inc’s (NASDAQ:TSLA) $2.2 billion annual cash burn demonstrates, it takes a lot of cash to establish a competitive position in the global auto market. Apple may already have that huge cash hoard earmarked.
Apple’s next major product doesn’t necessarily have to be a car. Apple has a track record of taking the world by surprise, and that has more explosive potential than anything.
Any new, successful product line could trigger a multiyear run for AAPL stock.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
