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Apple share price: can diversification offset iPhone sales slowdown?

Apple TV+ is set to launch in November 2019 with a rumoured subscription price of $9.99 per month, as Apple [AAPL] continues to work on offsetting slowing iPhone sales by aiming to hit $50bn in services revenue by 2020. 

The new streaming service joins a widening offering of diversified initiatives pioneered by the tech behemoth including: Apple Music, Apple News+, the Apple Card, iCloud storage subscriptions and the imminent Apple Arcade. 

However, Apple TV+ is nearing launch as the streaming service market becomes increasingly overcrowded, with AT&T Inc [T], NBCUniversal and Disney [DIS] all touting their own hotly anticipated offerings.

 

 

Apple won’t be putting all their eggs in one basket

Although Apple is set to dive into the streaming industry, the firm isn’t looking to overplay its hand just yet. Apple has allegedly set aside $6bn to launch the platform, which is a drop in the ocean compared to the $14bn analysts forecast will be spent by market-leader Netflix this year.

However, Netflix [NFLX] will need to stay vigilant. It’s worth noting that Apple’s last big media launch, the Apple Music streaming service, has in the US been able to unseat equivalent incumbent Spotify, to gain the most paid subscribers. 

Analysts forecast Apple TV+ will reach 100 million subscribers - all paying $9.99 a month - over the next five-year period; providing another huge revenue driver in the firm’s ongoing diversification plan.

 

Services boost

Apple TV+ will contribute to Apple’s ongoing services push, a segment that represented more than a fifth of Apple’s revenue in the third quarter of 2019, up 13% from the same quarter last year. The spike came as iPhone sales continued to fall - by 12% this time around -, meaning phone sales made up less than half of the firm’s revenue for the first time since 2012. 

 
Wearables also soared by 50%, with products including Airpods, Beats headphones and the Apple Watch, which accounted for more than $5.5bn of Apple’s $53bn in net sales. UBS [UBS] has reported Apple’s wearables segment “is now the size of a Fortune 200 company on a trailing 12-month basis”. 

$53billion

Apple's net sales for Q3

  

AirPods success

One product that has driven notable success is Apple’s AirPods. Apple executives recently revealed AirPods have been in “phenomenal demand” and it wouldn’t be unreasonable to bet on the product generating $10bn in revenue by 2021. The Apple Watch is another cash-generator and could see up to $20bn in sales over the next couple of years, too.

$10billion

Expected revenue generated from AirPods by 2021

  

While the iPhone has seen a drop in average price and steadily decreasing revenue, ‘breakthrough features’ - that encourage consumers to upgrade their products - seem to be increasingly easier to innovate across other products.  

 

Macroeconomics could throw a spanner in the works

Trade war uncertainty is ongoing and the ramifications have been seen across the market. Apple has not escaped the impact of market volatility, with the firm’s share price plummeting 17% through May before recovering to its early May level, by 21 August. 

Despite short-term wobbles, Apple’s share price has provided steady returns in 2019, with YTD growth of 35% as of 22 August. And with Trump seemingly attempting to cool trade war tensions, combined with falling interest rates, as well as Apple’s sustained revenue growth potential, AAPL stock appears to be a steady choice for investors. 

 

Market cap $968.144bn
PE ratio (TTM) 18.19
EPS (TTM) 11.78
Operating margin (TTM) 24.87%

Apple share price vitals, Yahoo Finance, 22 August 2019

 

The average price target for Apple stock from 36 analysts tracked by CNN is $226.67, representing a 6.3% increase from the August 22 price of $213.30, while the consensus price target compiled by Nasdaq is $237.5, representing an upside of 11.3%. 

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