S-Curve Has Caught Up with Apple Stock
Investment research firm Macro Ops recently delivered a blunt reality check to Apple Inc. (NASDAQ:AAPL) stock bulls.
In a blog post titled “What’s Really Driving Apple?,” Macro Ops talked about something that’s often ignored by analysts—the key driver behind Apple stock. (Source: “What’s Really Driving Apple?,” Macro Ops, May 18, 2016.)
Macro Ops said that you can talk about Apple’s driverless car project or its giant cash pile, but after all the dust has settled, the key driver behind Apple stock is “iPhone” growth.
The reason is simple. In Apple’s second fiscal quarter, it generated $50.6 billion in worldwide revenue, with $32.9 billion coming from iPhone sales.
While increasing iPhone sales helped to drive up Apple stock in recent years, the segment is now working against it.
Macro Ops pointed out that revenue from iPhone sales dropped by 18% from the year-ago period, and was much worse than what Wall Street was expecting.
“The problem is that the smartphone market is maturing,” the firm wrote in a recent report. “Most people who want a smartphone already have a smartphone. Revenue in Q2 of 2015 for the Americas, Europe, and Japan is less than it was in Q2 of 2014. This is a blatant sign that these markets’ demand has matured.” (Source: Ibid.)
One of the reasons behind slowing iPhone sales is a slower iPhone upgrade rate. Macro Ops believes that this is due to maturing smartphone technology.
“Smartphones have gotten as good as they’re gonna get. This is why users aren’t rushing to upgrade like they used to. What are you getting with newer models? A slightly better camera? A fingerprint scanner that is a bit faster than the old one? There’s not much that’s really worth the upgrade anymore.” (Source: Ibid.)
Macro Ops also said that China was a factor behind the company’s lackluster results. Revenue from China dropped 26% year-over-year in the second fiscal quarter. At the same time, Apple also has to deal with currency headwinds from the strength in the U.S. dollar.
“With a maturing smartphone market and their only potential source of growth (China) nearing economic Armageddon, Apple’s stock price is due for a long grind sideways frustrating both bulls and bears,” Marco Ops concluded. (Source: Ibid.)