An anxiety that continues to haunt Apple Inc. (NASDAQ 🙂 investors is whether one of & # 39; the world's most valuable companies can continue to grow, even if its flagship product, iPhone, faces a bleak future.
Consumers, who were once so in love with his gadgets, now seem less enthusiastic about buying newer models and instead stick to their older ones. They also find it difficult to pay the ever-rising prices that Apple charges to grow its sales, even if the volumes of iPhones sales fall.
In the most recent, for example, Apple experienced a 12% drop in iPhone sales. This was the first quarter since 2013 in which iPhones, according to eMarketer, did not account for the majority of Apple's revenues. This after the company's flagship accounted for more than half of the company's revenue last year, and is still crucial to the company's future growth, at least in the short to medium term.
Despite this general bearish environment for Apple shares – which has fallen by 2.3% over the past year while the index has risen 3.5% – we have advised investors to focus on the company's ability to to innovate and thrive when faced with challenges.
The company's latest initiatives to diversify its revenues from iPhones and to make optimal use of its product ecosystem came last week when the company introduced its new iPhone model and combined it with its video streaming service, which is set to be the cheapest of all available on the market.
Apple has priced its streaming video service, Apple TV +, at $ 4.99 per month. It also gives customers a year of free Apple TV + if they buy a new iPhone, iPad, Mac or Apple TV box. In addition to these competitive streaming prices, Apple has also priced the iPhone 11 at $ 699, which is $ 50 lower than the XR model launched last year.
Creative incentives to win customers
This is a creative incentive that we see working for customers because Apple TV + low prices and a free one-year trial period position the company to build a loyal subscriber base that can be charged more once the video store grows.
According to analyst estimates, Apple is expected to sell around 70 million new iPhones during the holiday season. In addition to iPhones, Apple will also sell millions more Macs, iPads and Apple TV & # 39; s. A new Apple TV + service that is offered free of charge with these devices could make the streaming service one of the largest within a few months. And the best analysts from Wall Street agree.
"TV + prices are lower than expected and bundling 12 months of free TV + with a purchase of most devices creates a competitive advantage in an increasingly busier streaming video market," said Morgan Stanley analyst Katy Huberty, who is Apple on the market in her basket with top choices for 2020.
"Second, Apple did not raise prices compared to similar product launches last year after several years of price increases," Huberty said.
Apple seems to succeed in its plan to reinvigorate its revenue growth and diversify its revenues from iPhones. The company's services, including Apple Music, movie rentals, and app downloads, produced a 33% growth last year with revenue of $ 40 billion – accounting for around 15% of the company's total of $ 265 , 6 billion.
That contribution will certainly accelerate as soon as the company's new service line – video streaming, Apple Pay and gaming – begins to break into it. According to an estimate by Morgan Stanley, the service contribution will continue to grow and around 60% of Apple's sales over the next five years.
Bottom Line
After a share of $ 142 per share in January, Apple shares recovered sharply and have now risen almost 40% since the beginning of the year after closing time at $ 218.75 on Friday. We believe that this upward movement has not yet been completed, especially now that the US and China have returned to the negotiating table to find a solution to their trade dispute – that, if it is not resolved, Apple's suppliers and sales in China can harm. A creative product launch and improvements on the macro front make Apple shares a powerful rally in the future.
