For some it’s just the usual September show-and-tell event Apple (NASDAQ:AAPL) has been hosting for years. For current and prospective owners of Apple stock, however, Tuesday’s event at Apple’s headquarters in Cupertino is so much more. It may be seen as — and treated as — an inflection point for the company, and subsequently for AAPL stock.
The make-or-break matter? The iPhone, or perhaps more specifically, the likelihood that other innovations can offset the slowdown the iPhone is facing.
The company and its flagship product still has a large base of fans, of course, professional and amateur alike. After all, it’s Apple. This is the company that mainstreamed the use of smartphones.
That optimism may still not be enough to alter reality though. Tuesday’s presentation will likely, finally jolt investors into making a bigger-picture decision that in turn shoves Apple stock into a longer-lived trend.
Mixed Messages for AAPL Stock
There’s a twist to the story most of Apple’s die-hard fans don’t want to acknowledge. That is, consumers are losing interest in the iPhone. They have been since 2012. Sales of the device, as measured by units, peaked in 2017. iPhone revenue peaked last year.
It’s got nothing to do with an ability to make each iteration a little better than the prior version. Apple can still make big enough technological leaps to justify a new entry every year. The market is simply saturated with ‘good enough’ phones remaining in use for longer timeframes, particularly now that the average sticker price for most iPhone models has pushed past $1000.
That’s certainly not the party line the most loyal of fans has plugged into in front of media event. Rather, their rhetoric has mostly renewed cheers for the positive impact of the iPhone.
Wedbush analyst Daniel Ives is one of those optimists. He believes “Apple’s supply chain is planning on 75 million units for the initial iPhone 11 launch period, which is a slight uptick vs. its prior iPhone cycle last fall.” Ives specifically touted “pent-up installed base demand” from owners ready for an upgrade.
By and large though, most analysts recognize the future is about everything else Apple is now doing. CFRA analyst Angelo Zino went as far as to call the new iPhone lineup (given what’s already known about them) “boring.” Zino’s is still interested in the event though, anticipating announcements regarding the company’s television and video-gaming ambitions.
An Unfamiliar Business Model
It’s a microcosm of the overarching headache investors are suffering.
Most observers understand the iPhone is an increasingly smaller piece of the company’s revenue mix, and that digital services is making up an increasingly larger portion of it. Dana Blankenhorn voiced it well last week, writing:
“Under Tim Cook Apple has learned to squeeze increasing amounts of lifetime revenue from each Apple customer, thanks to its services, which are phenomenally profitable. Getting customers in the door is thus more important than making money off the initial sale.”
What’s proving tough to handicap about the new business model is the pace of the transition, and whether or not the iPhone’s revenue can ever fully be ‘replaced’ by services.
On that matter Blankenhorn adds:
“Analysts should be focused on the average revenue per user of Apple’s user base, not the bright, shiny objects executives hold up next Tuesday.”
Tuesday’s presentation won’t answer all questions about the pace of the business model’s shift or the monetization of Apple product owners. At best, it might lead the masses to a more educated guess.
Still, more convinced they’ve got a better grip on what’s to come, traders as a group are more likely to make a buy or sell decision that jump-starts a longer-lived trend.
Looking Ahead for Apple Stock
For the record, the market has given the company the benefit of the doubt, pushing Apple stock up 45% from its late-December low. The rebound is even more impressive given how iPhone sales fell short of expectations for the quarter ending in September of last year, followed by a 15% decline in iPhone revenue during the all-important holiday quarter.
That bullish move, however, may have more to do with the market-wide tide than Apple itself.
Without saying as much, many investors remain tacitly suspicious of Apple stock. How convincingly Tim Cook is able to make his product pitches on Tuesday — and demonstrate their ability to drive services revenue — will mean everything in that regard.
At the very least it will solidify existing inklings, and subsequently set the tone for the stock’s foreseeable future.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.