Apple Stock: Could Tim Cook’s “Side Projects” Be the Next iPhone?

Apple StockA New Era for Apple Stock

If you’re an Apple Inc. (NASDAQ:AAPL) stock investor, you might feel a bit underwhelmed by what the company announced at its latest Worldwide Developers Conference (WWDC) on Monday. While Tim Cook didn’t announce any technological breakthroughs or revolutionary device at the event, his side projects could keep Apple stock going.

Allow me to explain…

Apple Pay

At the event, Apple’s vice president of software engineering, Craig Federighi, announced that “Apple Pay” would finally work on web sites. Starting this fall, “Mac” users can pay by clicking a “Pay with Apple Pay” button in “Safari” and authenticate their purchases through “Touch ID” on their “iPhones” or “Apple Watches.” (Source: “Apple Takes on PayPal with Apple Pay on the Web,” TechCrunch, June 13, 2016.)

Note that paying on web sites is a long-awaited feature for the digital payments service. Also, the introduction of Apple Pay to the Web puts the company in direct competition with PayPal Holdings Inc (NASDAQ:PYPL).

According to Apple’s CEO, Tim Cook, Apple Pay has been “growing at a tremendous rate.” The service had successful launches all over the world, with China and Singapore being the most recent additions. During the earnings conference call in April, Cook said that Apple Pay has “more than five times the transaction volume of a year ago” and is adding “one million new users per week.” (Source: “Apple Timothy Donald Cook on Q2 2016 Results – Earnings Call Transcript,” Seeking Alpha, April 26, 2016.)

You might think that Apple Pay is just a side project. However, the reality is that when hardware sales don’t excite the stock market as much as they did before, Apple stock needs new catalysts. Right now, services like Apple Pay are great candidates for this exact role.

In fact, services represent one of the fastest-growing segments at Apple. In its most recent fiscal quarter, revenue from services surged 20% year-over-year to $6.0 billion. (Source: “Q2 2016 Unaudited Summary Data,” Apple Inc., April 26, 2016.)

Artificial Intelligence

One of the criticisms Apple received was about the company’s progress in artificial intelligence (AI). In a blog post published last month, Marco Arment—cofounder of Tumblr—wrote, “Today, Amazon, Facebook, and Google are placing large bets on advanced AI, ubiquitous assistants, and voice interfaces, hoping that these will become the next thing that our devices are for.” (Source: “If Google’s Right About AI, That’s a Big Problem for Apple,”, May 21, 2016.)

He went on to say, “If they’re right—and that’s a big ‘if’—I’m worried for Apple.” (Source: Ibid.)

As it turns out, Arment might not need to worry for Apple because the Cupertino-based tech giant does have plans on the AI front. At the WWDC event, the company announced that it would build more artificial intelligence into its services, including digital assistant “Siri,” photos, maps, and other online services.

Hardware Devices

As much as Apple stock bears love to talk about the company’s hardware business, it is still more than solid. In its most recent fiscal quarter, iPhones, “iPads,” and Macs brought in a whopping $42.4 billion in revenue. Together, the three product lines accounted for nearly 84% of Apple’s quarterly revenue.

While the company did not release any new device at the recent developer conference, it is expected to launch some major products—including the “iPhone 7”—this fall.

In fact, the expectation of the iPhone 7 release was one of the reasons behind the iPhone’s lackluster sales last quarter. However, that might start to change.

You see, when the “iPhone 6” was released back in September 2014, a lot of people bought it. In fact, Apple sold more than 10 million iPhone 6 and “iPhone 6 Plus” models in just three days after their launch. (Source: “First Weekend iPhone Sales Top 10 Million, Set New Record,” Apple Inc., September 22, 2014.)

However, many of those who got the iPhone 6 bought it on a two-year contract. When Apple releases the iPhone 7 this fall, those who bought the iPhone 6 on a two-year contract will be eligible for an upgrade. Judging by the brand loyalty of Apple users, the company could have another great launch event.

The Bottom Line on AAPL Stock

No doubt, Apple stock is not really the hottest commodity in the market today. As the company transitions from startup-like growth to more moderate expansions, valuations have gone down. Still, with a growing services segment, ongoing developments in AI, and a multi-billion-dollar hardware business, AAPL stock investors could be rewarded in the long term.
Image source: Flickr; Image copyright 2012, Mike Deerkoski