Apple Stock Looks to the Next Growth Catalyst
Apple Inc. (NASDAQ:AAPL) stock closed in the green on Tuesday at $118.25. However, the stock is likely to remain subdued for the short term, as focus shifts to what could be the next growth catalyst for the company, given the decline in its annual revenues.
Apple announced its fourth-quarter results yesterday. The prime focus was “iPhone 7” shipments, which were reported at 45.51 million. This was better than the estimates of around 44.8 million. Also, the tech giant provided better-than-expected guidance for first-quarter 2017. Apple expects revenue between $76.0 billion and $78.0 billion. The company has declared a cash dividend of $0.57 per share. (Source: “Apple Reports Fourth Quarter Results,” Apple Inc., October 25, 2016.)
The quarterly revenue of $46.9 billion was in line with estimates, and quarterly net income of $9.0 billion (or $1.67 per diluted share) beat the expectations. International sales accounted for 62% of the quarter’s revenue. However, business from China continues to be slow, which has been weighing on AAPL stock.
But Apple CEO Tim Cook expects the situation to improve. “We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24% to set another all-time record,” said Cook.
Indeed, that seems to be the most overlooked part of Apple’s business. The growth in the company’s services revenue has touched a record of $6.3 billion, and is likely to keep growing as Apple focuses on developing its “App Store” and content. Despite concerns surrounding iPhone 7 sales, growth in the Apple ecosystem is on track, and it will have a positive impact on Apple stock.
Ben Schachter, an analyst at Macquarie Capital (part of Macquarie Group Ltd (ASX:MQG)), believes that going into the quarter and for the long term, software and services—particularly the App Store—are the most underappreciated aspect of the Apple story. (Source: “Apple’s Tim Cook: ‘We’re returning to growth’,” CNBC, October 25, 2016.)
Apple is also introducing a fresh lineup of “MacBook Pros” in its event scheduled for October 27. MacBook sales are likely to see traction as the holiday season begins. These strategies are likely to stop the slide in AAPL stock.