Apple Stock’s Run Is Far From Over
The bad news just doesn’t end for Apple Inc. (NASDAQ:AAPL) stock. First was the company switching to a three-year lifecycle for its main product—the “iPhone.” Then, it was reported that Chinese regulators ordered Apple to stop selling the “iPhone 6” and “iPhone 6 Plus” in the country. Is it over for Apple stock?
Not really. Here’s why.
If we’ve learned anything from Apple stock’s rise back in the late 2000s, it’s that Apple’s future business is quite difficult to predict. When AAPL shares were trading at less than $20.00 apiece (split adjusted) in 2007, who would have thought that the company could be making more than $30.0 billion in iPhone sales in a single quarter? (Source: “Apple Inc. Q2 2016 Unaudited Summary Data,” Apple Inc., April 26, 2016.)
The idea is that it’s not that straightforward when it comes to forecasting how Apple could be doing (and where AAPL stock could be trading at) in the future. As a technology company, Apple’s future depends on what kinds of products and services it brings out and, more importantly, how the market reacts to them.
So, is there anything that could become the next iPhone for Apple?
As a matter of fact, there is.
First up is the possibility of Apple becoming the next media giant. A recent report from the Financial Times suggested that Apple was interested in buying Time Warner Inc (NYSE:TWX). Last year, Eddy Cue—Apple’s senior vice president of Internet software and services met with Time Warner’s head of corporate strategy, Olaf Olafsson. In the meeting, Cue proposed the idea of buying Time Warner. (Source: “Apple Executive Proposed Bid for Time Warner,” Financial Times, May 26, 2016.)
Although that discussion did not turn out to be fruitful, sources did say that Apple is planning to increase its spending on original content to “several hundred million dollars a year.” According to some bankers, the company has been “on the lookout for content assets for several months.” (Source: Ibid.)
You see, Apple already has a huge ecosystem. By the end of last year, there were over one billion active devices in the world powered by the Cupertino, California-based tech giant. That userbase has created all kinds of monetizing opportunities.
The company is already successful in the music business with “iTunes” and “Apple Music,” but is yet to establish a strong presence in the video sector. If it manages to acquire a company with solid assets in video (maybe a popular on-demand video streaming company?), it could integrate that into its existing one-billion-plus device platform. This could allow Apple to finally break into the multi-billion-dollar market of the video entertainment business.
Also, there’s the much talked about Apple car project. Although the company is yet to officially announce this endeavor, Tesla Motors Inc (NASDAQ:TSLA) founder and CEO Elon Musk said that Apple’s electric car project is an “open secret” in Silicon Valley: “It’s pretty hard to hide something if you hire over a thousand engineers to do it,” he said. (Source: “Tesla’s Elon Musk Says Apple Electric Car Is an ‘Open Secret’,” Fortune, January 12, 2016.)
As Tesla’s recent round of funding suggested, building a car from the ground up is costly. But Apple could go with another approach. In April, it was reported that Apple might be partnering with Magna Steyr, one of the largest contract automakers in the world. (Source: “German Report Claims Apple Car Could Be Manufactured in Austria By BMW/Mini Maker Magna,” 9to5Mac, April 18, 2016.)
Going with a contract automaker could be the right choice for Apple. The company had huge success with the iPhone, which was and still is being made by electronics contract manufacturing company Foxconn Technology Group.
Will Apple’s car project be successful? Given Apple stock’s current price, there are certainly a lot of people doubting that. But let’s not forget all the loyal followers the brand has amassed over the years. Ever since the first iPhone came out, Apple fans have been lining up at Apple stores for each product launch. Even with Tesla’s competition, I believe Apple would still have an audience when it launches the so-called “iCar.”
Of course, there is always the question of whether the company can actually finish those projects. On that front, you just need to look at one number: $216 billion. That’s how much cash Apple has. So, whatever it plans to do—even if it’s spending tens of billions buying an entertainment giant like Time Warner—it has the financial ability to do so.
Don’t forget that despite the stock’s underwhelming performance in recent months, Apple is still running a very profitable business. It made $10.5 billion in quarterly net income, a number most competitors could only dream of. Moreover, the downturn in AAPL stock has made its earnings extremely affordable to investors—if you buy the stock today, you’d be paying just $10.66 for every dollar of Apple’s earnings.
The Bottom Line on AAPL Stock
There is no denying that sentiment hasn’t been that great toward Apple stock. Also, it’s yet to be seen whether the company’s current developments would be able to wow consumers like the first iPhone. Still, Apple is far from over and at today’s prices, investors who are willing to pick up a company like AAPL stock have a decent chance at being rewarded in the long term.