Apple (NASDAQ 🙂 offered its bulls a few powerful ammunition this week. The maker of the popular iPhone showed how it can use its huge customer base to unlock new growth areas as demand for its flagship products diminishes.
In a major shift to its growth strategy, Apple unveiled a series of new services on Monday, including a new video subscription service that will contain the original content; an Apple credit card in collaboration with Goldman Sachs Group (NYSE :); a news app that provides access to more than 300 magazines, as well as newspapers and a game service that offers access to more than 100 exclusive games. With the aim of disrupting a large number of different industries, Apple shows that it has not yet completed its super-growth cycle and is ideally positioned to use its 1.4 billion active installed base to diversify its revenues
The most important part of this strategic shift is Apple & # 39; s trip to the highly competitive video streaming service arena, where it will compete with established rival Netflix (NASDAQ 🙂 and traditional media companies such as Disney (NYSE: ). Apple TV Plus is ad-free, available on request and visible both online and offline.
Apple plans to launch in more than 100 countries this fall. So far it has not revealed how much it will charge for the service.
With regard to consumer credit, Apple Card has no common costs such as annual, foreign transactions and late fees, further enhancing the appeal of the Apple Pay feature
No longer just about iPhones
The new movements of Apple are in line with our vision that Apple is not just about iPhones and that it has many options to prevent a slowdown in its hardware activities. With this optimistic outlook, however, the biggest question for investors is whether they should remain loyal to Apple shares if its CEO Tim Cook makes the biggest bet of his career after the death of Steve Jobs in 2011?
The shares of the company, after touching a record high of $ 233.47 in October, have fallen by around 18%, worse than the. However, it has increased by 7.5% in the last month and by 8% in the past year. The shares closed at $ 186.79 yesterday.
Given the momentum that Apple's service department has shown over the past five years, we believe that Apple is on the right track and that long-term investors will be rewarded for their patience. The company's services, including Apple Music, rental films and app downloads, produced 33% growth last year with revenues of $ 40 billion – accounting for about 15% of the company's total of $ 265.6 billion.
That contribution to Apple's total sales, according to an estimate by Morgan Stanley, will continue to grow and generate approximately 60% of Apple & # 39; s revenue in the next five years.
Undoubtedly, Apple & # 39; s journey to service services will not make its main revenue generator easy. It enters the media entertainment game at a time when Netflix has won 139 million worldwide subscribers for its enticing content, while Disney, which has decades of experience in making hit shows and films, plans to launch its own streaming service later this year, armed with his newly acquired media possession of Time Warner.
But what makes Apple different are the deep pockets of the company and the very loyal customer base. A delay in the company's iPhone activities does not mean that the smartphone industry is dying. Even if we assume that Apple has seen the best days of its iPhone's growth, it will still be a great cash-cow business, giving Apple a broad economic dimension to settle in other areas.
Bottom Line
For long-term investors who strive for a decent return through dividends and capital growth, we find Apple a very suitable candidate. The company is returning more and more cash to investors in the form of dividends and share buybacks.
Delaying iPhone sales and the company's investments to accelerate growth in its services activities may keep stocks depressed in the short term, but we think investors will be better off doing the positive. retain that will come with the renewed focus on services.
