Apple Sales Drop, but AAPL Stock Should Have a Very Bullish Year Ahead
Apple Inc. (NASDAQ:AAPL) has disappointed investors with a marginal miss on “iPhone” sales; Apple stock fell over two percent on Wednesday.
But investors promptly realized that a slight miss on iPhone sales wasn’t going to alter the essential strength of the Apple brand and Apple stock, which has gained 12.2% year-to-date. Indeed, the drop was more of a correction than a vote on AAPL stock’s outlook.
Indeed, Wall Street itself dropped because Apple stock, a leading member of the Dow Jones Index, was under pressure due to lower revenues. Apple reached a historic turning point, in that it recorded its first decline in sales and profits in 15 years. The data of the last fiscal quarter marked a nine percent drop in revenues over the same period of 2015, with revenues down to $46.9 billion from $51.5 billion. Earnings were down also, from $11.1 billion to $9.0 billion.
To state the obvious, the results were lower than expected, but Apple still enjoyed solid earnings. Given the huge competition from other smartphones, a slight dip in sales—and we are talking about an insignificant dip, after all—was not such bad news. No wonder AAPL stock promptly started rising after opening down. Moreover, some may have excessive expectations about Apple. It’s already a huge company with a $621.0-billion market cap.
Apple Is “Ripe.” It’s not a Start-Up and It’s Unrealistic to Expect Unending Growth
Apple did not have time to factor in the effect of the new “iPhone 7”, because the fourth quarter ended on September 24, barely a week after its launch on September 16. That also means Apple was not able to reflect on any benefits that may have trickled down from the recall of the iPhone’s main competitor, Samsung Electronics Co Ltd’s “Galaxy Note 7.”
Indeed, the holiday shopping season hasn’t started yet either. Therefore, Apple still has much growth potential over the next quarter. Even after the October 26 post-result dip, AAPL stock was picking up strength, to remain well within its record 2016 price of $118.25. The iPhone is Apple’s big producer, accounting for over 60% of earnings.
While a slowdown in sales can attract the bears, the potential boost in sales from the iPhone 7 and the forthcoming, all-new, tenth-anniversary edition should be bullish enough to send AAPL stock to a new record high. Apple will likely skip an “S” edition for the new iPhone 7, moving straight to the “iPhone 8” next year. That could trigger a startup level of growth.
Apple Expected Sales Drop in China: It’s Already Targeting New Markets
The 33% drop in iPhone demand in China was expected, given the rise of many Chinese local competitors. But the Cupertino, California-based tech company is already betting on a big slice of the Indian market. (Source: “Apple Pins Hopes on iPhone 7 as Profit, Revenue Decline,” The Wall Street Journal, October 26, 2016.)
Meanwhile, Apple Inc. is not just an iPhone maker. It still offers the “Mac” line of computers, the “Apple Watch,” and the “iPad.” Then there is Apple’s “Services” division, which grew 24% over the quarter.
Indeed, here’s another—and more bullish—way to look at Apple stock. Some of the “disappointing” iPhone sales figures derive from the kinds of problems most companies would love to have. Apple failed to meet demand from customers. Supply was not enough, and it will only match demand by the next quarter, said Apple CEO Tim Cook. That’s not all; those who want the “iPhone 7 Plus” may have to wait longer. Now, there isn’t even a Samsung alternative to absorb that demand.
Whatever bearish sentiment there is on Apple stock, it should dissipate promptly. Apple remains the U.S. company with the highest profit ($45.7 billion in 2015). It boasts $237.6 billion in cash. It is so rich a company in fact, that the €13.0 billion (about $14.0 billion) that the European Union demanded in back taxes has no impact whatsoever.
Where Apple must remain vigilant is in keeping its youthful curiosity to try new things and keep innovating and surprising consumers. That’s the secret formula to its success, and it’s what investors expect, even if the company is a mature entity in the tech world.