In the past, the story of Apple (NASDAQ:AAPL) was easy. Thanks to its compelling mainstream brand and cohesive ecosystem, only a fool would be skeptical of Apple – and trust me, I’ve had my fair share of pretty dumb eyes on the relevance and resilience of the giant. consumer electronics. But nothing lasts forever and there are deeper fears that the business will lose its charm.
Mainly, Apple’s iconic iPhone just isn’t the license to print money like it once was. Since the start of 2018, the smartphone brand that launched it all has accounted for a smaller share of the company’s total global revenue. For example, in its first fiscal quarter of 2018, the iPhone accounted for almost 70% of all sales. In the fourth quarter of 2020, this share fell to 40.9%.
Moreover, it is no longer a remarkable proposition that Apple products lose their shine compared to the competition. Back in the days when the iPhone was retired a few years from its debut, you could easily tell the difference between Apple’s flagship and its rivals. Now, as Techradar.com said in its comparison between Apple and Samsung smartphones, there’s not much between them.
Both feature stylish designs of similar appearance. Additionally, competing products have emphasized high quality camera optics to the point that one would really have to be a true connoisseur of digital arts to appreciate their individual nuances.
Equally important, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Google has invested countless hours in the development of its Android operating system. Today, unless you’re an operating system snob, most users will be happy to operate in either ecosystem.
And as a blog post on Ipitaka.com points out, if the Apple ecosystem is great, it can sometimes stink. From more expensive products and services to proprietary charging methods, being part of this ecosystem comes at a cost. As competition tightens, it becomes harder and harder for consumers to justify the extra cash spending, which helps explain the deterioration in iPhone sales.
Could services help save AAPL stock?
But just like outgoing President Donald Trump, you don’t want to count AAPL until it’s really over. Forbes Contributor Dan Runkevicius makes an excellent point: Apple is perhaps the most misunderstood company. Specifically, the markets frightened by declining iPhone sales are overblown.
To be fair, a lot of those who hit the exits are probably basing their assessment on fundamentals. Between fiscal 2009 and 2014, Apple’s total revenue grew at a compound annual growth rate of nearly 34%. From 2015 to 2020, however, total revenues fell at a surprisingly low CAGR of 3.3%.
What happened? Well, it’s easy to blame the iPhone. In 2009, iPhone sales as a percentage of total sales averaged 30.2%. In 2014, the average was 56%. A year later, that metric peaked at 66%. Since then, the share has fallen to just under 49% in 2020.
Nonetheless, Runkevicius maintains that the phones upgrade cycle has been extended. This results in people keeping their phones for longer, which increases the cost of the service. “In other words, there are more iPhones active than ever. It should be quite a symphony in the ears of Apple investors. Because Apple earns a lot more with its old phones than selling new ones. “
On the one hand, this is a compelling thesis because Apple sells expensive warranty and insurance services, with some plans being a quarter of the cost of the target device. In addition, the bills you pay with your iPhone go partly into Apple’s pockets. Plus, you get a myriad of services and platforms, like iCloud, Apple Music, and Apple TV.
Still, I don’t think it’s wise for investors to ignore phone and device sales altogether. While service-based revenue was 22.5% of total sales in Q4 2020, the iPhone is still reporting bacon at 40.9% share of total revenue, as I mentioned near the top. The services are undoubtedly intriguing, but there is still a long way to go.
Tempting technical configuration
As the debate over Apple’s fundamentals rages on, the technical picture presents a tempting setup. After a strong recovery between the slump of March of this year and the beginning of September, AAPL has entered a phase of consolidation.
Based on my interpretation, Apple is plotting a bullish pennant formation, with trendline resistance and trendline support tightening more tightly into a top. At this point, we might see a breakout moving higher.
It is a model similar to what I saw with DraftKings (NASDAQ:DKNG) back in August. Although the fundamentals do not look favorable due to the threat of a second wave we are currently seeing, DKNG nonetheless surged higher, allowing speculators to capture shorter term profits.
I see the same has happened with AAPL, which theoretically makes it a buy when stocks are incredibly overvalued. Still, if you’re going to play, look at it like a hawk. As with DKNG, when investors began to pay attention to fundamentals, stocks fell like a rock.
As of the publication date, Josh Enomoto does not hold (neither directly nor indirectly) any position in any of the stocks mentioned in this article.
Former senior business analyst for Sony Electronics, Josh Enomoto has helped negotiate major contracts with Fortune Global 500 companies. Over the past several years, he has provided unique and critical information for the investment markets, as well as for various other sectors, including law, construction management and health.