This Could Be a Game-Changer for Apple Inc.
Tech behemoth Apple Inc. (NASDAQ:AAPL) has been facing severe volatility in its stock, courtesy of the Street’s oft-repeated negative commentary. However, I finally see an uptrend kicking in for Apple stock. Contrary to bearish sentiment, I strongly believe AAPL stock will revert to its all-time highs witnessed earlier this year.
The latest criticism happens to come from the techies. Apparently, Apple’s “iPad Pro” is getting a lot of thumbs down. A lack of innovation is being cited as one reason for the negative reviews, something that Apple has heard before. The quirky add-ons of “Apple Pencil” and “Smart Keyboard” failed to impress critics, as the main product remained only an upgrade on size, more than anything.
I’ll leave my take on innovation and the current product for another day, but one thing remains certain to me: Apple’s iPad segment is facing a decline and the latest product has been of no consolation.
Apple’s iPad segment saw a double-digit drop in sales in the latest quarter, falling 19.5% from the same quarter last year. The company still managed to sell 9.9 million units, indeed a stellar figure, but the overall decline should sound an alarm at the company’s Cupertino headquarters.
Case in point: commoditization is real and it’s picking up pace. Be warned that if it catches up faster than we are expecting, AAPL stockholders will be in trouble. Remember, Mr. Market judges by quarterly performances, conveniently ignoring the company’s long-term prospects.
To immunize itself, the best move currently at Apple’s disposal is to try its luck in areas beyond the hardware business. Admittedly, I’ve been going on and on like a broken record on how the “Internet of Things” (IoT) could be a great avenue for Apple to expand into. Clearly, I’m not the only one who thinks Apple needs to make a full-blown foray into the services industry. Goldman Sachs analysts have very aptly pointed out how Apple could further strengthen its grip over the market through this lucrative avenue, too. (Source: “Goldman Says to Buy Apple Because It’s Becoming a Services Company,” Bloomberg, November 18, 2015.)
I discussed this in my last piece how “Apple Pay” could potentially turn out to be a great move for the company. (Read: “AAPL Stock: Goldman Sachs Delivers Reality Check to Apple Inc. Bears.”) This time around, I’ll take my focus beyond that to its “Apple TV” service, which is expected to go live in the coming year.
Apple is already in talks with broadcasters and studios, including ABC, CBS, ESPN, The Walt Disney Company, and Twenty-First Century Fox, to name a few. Now, the plan is not only to substitute Apple TV for cable TV, but also for the additional online streaming services like Hulu and Netflix, whereby Apple users will be able to save their library in the iOS cloud.
Not only will this subscription-based model potentially become a solid source of revenue for the company, but the service will also fortify Apple’s native ecosystem against Alphabet Inc’s “Android” OS.
The only concern is that the service will obviously be available to Apple users only, which will limit its scope to the iOS platform. Media companies might be reluctant to license their content to the Apple TV service since it will restrict their target market. In a nutshell, the move will likely threaten streaming services, including Netflix, “Amazon Prime” TV, and Hulu, and it will also take Apple another step closer to stealing away some of Android’s massive market share.
The Bottom Line on AAPL Stock
The rage over the iPad Pro may be real, but the good thing for this high-margin company is that while there are countless cheaper substitutes available, the iPad still enjoys a leading position in the high-end tablet market, making it a premium pick for consumers with greater purchasing power.
Additionally, should Apple make the right moves in the services industry, it could potentially become an unbeatable force in the IoT industry.
Long story short, I’m not betting against AAPL stock.