Calling a spade a spade, Apple Inc. (NASDAQ:AAPL) is the most recognizable names in the world. By extension, AAPL stock remains one of the market’s most sought-after picks.
Both platitudes are well deserved. The company has earned its way to the top, making a piece of hardware — the iPhone — not only a technical marvel, but a status symbol and lifestyle centerpiece like no other. The device keeps millions of consumers ranging from tweens to geriatrics with their noses buried in their smartphones in all four corners of the earth.
While Apple has been largely deserving of its spot on so many investors’ pedestals, that sort of collective homage is always dangerous. Nothing lasts forever, and as unpopular as the premise may be, it would be wise to at least entertain the possibility that the next-generation iPhone (referred to the iPhone 8 so far) could the unveiling that starts exposing Apple’s cracks.
iPhone 8 Flop? Never!
Before you pull out your pitchfork, start heating up the tar and gather your feathers, dial it back just a bit. This isn’t to say that even a mediocre Apple still isn’t better than most any other stock on the planet.
Still, there are three key reasons the iPhone 8 could end up not being the panacea it has been made out to be. Yes, they’re rather obvious, but concerns all the same:
1. People Really Are Growing Tired of the Constant Connectivity
It was fun for a few years, but some smartphone owners — an increasing number of them — are starting to realize their unhealthy addiction to their devices. A survey performed last year indicated that 42% of Americans constantly check their phones for new messages. It’s a statistic being noticed by impartial observes like CTV technology analyst Carmi Levy. Levy commented last year:
“The promise of technology is that it’ll improve our lives, but sometimes we become enslaved to the technology because there’s so much going on. A certain part of our brain is always looking for something that is perhaps simpler … and delivers as promised with fewer frustrations.”
Enough consumers are starting to move the notion out of their subconscious into their conscious.
2. $1,000 for a Phone? Really?
Yep, somebody out there won’t think twice about paying it. A lot of people won’t think twice about paying it. For a wide swath of iPhone fans who will sooner or later realize that’s more than one month’s rent or mortgage payment, though, they’re due a “get real” moment.
3. Strong Competition
For the longest time, Apple had little to no competition. That’s changing though. Yes, the exploding battery debacle Samsung Electronics (OTCMKTS:SSNLF) faced with its Galaxy 7 phones was damning, and it’s not like the Google Pixel from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) was a smashing success that threatened Apple either.
Both companies are still overhauling their hardware and improving their designs though, and consumers are taking notice, for about a third to half the cost of an iPhone.
Potential Impact on AAPL Stock
As for the impact a lackluster iPhone 8 response might have on AAPL stock, one can only guess. But, one can still make an educated guess.
For its most recently completed quarter, Apple sold 78.29 million iPhones, generating $54.38 billion worth of revenue. That’s not necessarily a full picture of the then-new iPhone 7’s success, however. The device was actually unveiled a few days prior to the beginning of the quarter, and saw tremendous sales immediately after its launch. For the iPhone 7’s inaugural quarter, the company produced iPhone revenue of $28.16 billion, selling 45.51 million units. Between both quarters, the bulk of the iPhones sold were the 7 model.
It was record-breaking success, by the way, with the 78.29 million iPhones sold last quarter edging out sales of the second edition of the iPhone 6 in the comparable quarter a year earlier. The average selling price for the most recent quarter comes out to $695 apiece.
That price tag does present something of a quandary for any estimates regarding the impending success of the iPhone 8. It could sell 30% fewer phones, but inasmuch as the cost of the 8 is more than 40% greater than the 7, Apple could conceivably do just as well (and possibly post wider margins).
This is where putting AAPL stock on a pedestal becomes a bit of a problem though.
Bottom Line for Apple
For better or worse, Apple shareholders have largely been trained to expect beats not just of revenue and earnings estimates, but also beats of sales as measured by units. Any weakness on any front poses a risk to a usually frothy AAPL valuation.
My prediction? I firmly believe the iPhone 8 will be an unexpected disappointment, though that’s distinctly different than a flop. Some — though not all — will balk at a four-figure sticker price, forcing people to finally ask themselves “What are we doing, paying a thousand bucks to keep in touch on Facebook and to play mobile video games on a five inch screen?”
Again, don’t misunderstand. I fully acknowledge there are some utilitarian features on the iPhone 8 that will be viewed as a must-have for some consumers. Wireless charging is convenient, and the built-in touch ID is going to be critical to some business users concerned about security.
By and large though, I have to believe the average consumer just wants a phone they can use to stay connected, via the web and voice. An edge-to-edge screen or a lack of a home button isn’t the game-changer it’s being made it to be, especially at $1,000 a pop … even for people who only own the iPhone as a status symbol.
To quantify my pessimism, I’m guessing Apple sells 70 million units of the iPhone 8 in its first full quarter starting in October. That translates into more year-over-year revenue, but is still a letdown for what’s supposed to be “the best iPhone ever.” Such a result could easily send AAPL sock careening, though odds are good the market would figure it out before the official numbers were released by the company. AAPL stock could lose as much as 20% of its value on that kind of worry.
Perhaps worse than the numbers themselves would be the sudden realization that Apple is indeed fallible. A bad quarter is forgivable. A flawed business model isn’t as easily forgotten.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.