The most noteworthy takeaway from Apple Inc.’s (NASDAQ:APPL) latest earnings report was the slowdown in its growth figures. Mac unit sales slowed, iPad sales fell, and the management remained reluctant to give away any solid numbers on the Apple Watch. Luckily, the biggest growth driver, iPhones, kept AAPL stock afloat. It makes absolute sense that the company has foreseen the inevitable and has picked up on the Apple car idea that Steve Jobs had mulled over during his life. However, there remain a number of other untapped markets where an iProduct could find an easy niche. Case in point: the gaming industry.
Despite the rise of mobile gaming, where Apple’s iOS ecosystem continues to expand, traditional video gaming still takes the biggest chunk of the gaming industry. With Nintendo’s fast declining hold on the market, the two biggest and pretty much only options that remain in the gaming arena are Sony Corporation’s (NYSE:SNE) PlayStation and Microsoft Corporation’s (NASDAQ:MSFT) Xbox lineups. It wouldn’t be wrong to say that video gamers are almost out of options. At this point, Apple stands a chance to grapple onto a good chunk of the market should it offer something with the classic Apple touch.
This Could Be a Catalyst for AAPL Stock
Apple already boasts the fastest-growing high-end ecosystem powered by the iOS—from smartphones to tablets, from set-top TV boxes to watches, and now even cars. One brick missing in the wall that will further cement its industry position is a gaming console, which could help it create the biggest machine-to-machine ecosystem that the tech junkies often refer to as the “Internet of Things.”
Loyal Apple fans know that this business line wouldn’t be new for the company. During the late 90s, Apple tried its luck with its first gaming console, the Apple Bandai Pippin, which was sadly a dud. This year, Apple TV has been touted as Apple’s biggest venture in the gaming industry, but despite offering some promising gaming potential, Apple TV is nowhere close to the traditional gaming console that remains popular amongst hardcore gamers.
The responsive, Siri-powered, touch-friendly remote that comes with the Apple TV could match up to a Nintendo Wii U, but hardly moves the market for PS4 and Xbox One. Sadly, the console doesn’t offer the kind of storage and graphics that the heavy-duty consoles by Sony and Microsoft do. Also, Apple TV’s focus on only the iOS-run games did not bode well for the product. Android-based set-top boxes, including Alphabet’s Google Nexus Player and Nvidia’s next-gen and powerful set-top TV box, the Shield, are a direct threat to the Apple counterpart.
What’s needed now is a full-fledged gaming powerhouse that hosts both iOS and mainstream video games and offers big local storage, unlike the Apple TV that only offers cloud storage.
Apple management must see the endless possibilities that remain unexplored within this industry. Taking a step beyond a conventional gaming console, Facebook has an aim to tap into this market with its virtual reality head-mount, the Oculus Rift. As a first-mover, Facebook will open the world to immersive gaming, the most interactive form of gaming to this day. If not a conventional console, Apple could offer some other futuristic device for gamers that could compete with Facebook’s venture.
The Bottom Line on AAPL Stock
The U.S. and Chinese markets are jointly the biggest revenue generators for the gaming industry, and both of these markets hold the biggest brand recognition for Apple. In the U.S. alone, the local gaming industry is expected to grow by 30% in the next three years. (Source: “U.S. games industry forecast to grow 30% to $19.6 billion by 2019,” VentureBeat, June 2, 2015.) With its technological strength and its strong brand recognition, Apple could easily become a leader in the video gaming industry.
Nonetheless, with or without a new product, the company is still the most profitable in the S&P 500 companies. AAPL stock has outperformed the S&P 500 market index by four folds, year-to-date. Fundamentally, the company has a strong cash position, attractive margins and low price multiples—all of which point to undervaluation.
In a nutshell, AAPL stock could be a promising investment.