With their flagship iPhone sales in decline, earnings down year over year, and all the concerns about tariffs, Apple stock is still up 30% for the year and 17% since June 1.
There is a certain mystique that has always surrounded Apple, which we might even want to quantify as a value-added component of their brand. Their products have never been known for value, and in fact, they have always offered less value in a practical sense, by way of the premium that they have been able to charge people who have always been very willing to pay it.
Apple started out as a computer company, and were there at the dawn of personal computing, competing side to side with what were called personal computers, or PC’s, in contrast to their own personal computers, which weren’t even called PCs, they were called by Apple’s branding, Macs.
PCs always offered more bang for the buck in terms of features, and weren’t just more feature rich but cost significantly less as well. Offering less for more money is normally a recipe for disaster, unless you are Apple that is.
It didn’t even matter that most software was not written for Apples, as their faithful simply either tolerated this lack of usability or spent even more money for workarounds, like being able to boot up your Apple as a PC when needed. This meant that they did not only have to spend even more, but put up with the inconveniences that resulted from all this, but no matter, these were Apples.
Once Apple got into the mobile device business, this all carried over. Their version of the smartphone wasn’t even a smartphone, it was an iPhone, which shows just how much their branding stood out. Even all these years later, if you ask their consumers if they own a smartphone, many will reply with a no, they own an iPhone.
Apple also makes tablets, but these aren’t called tablets, they are called iPads. No one calls their Samsung tablet a Samsung, they call it their tablet. Samsung devices beat Apple’s in every way but one, they aren’t made by Apple, and the brand here is everything to many people.
Apple can even get away with annoyances such as their eliminating a headphone jack from their devices, which even Apple aficionados complained about, but they complained and still bought. Not having a headphone jack and having to use an awkward dongle instead was at least seen as acceptable; not having an Apple device was not.
Apple’s Loyalty is Legendary
Apple has always leveraged their pull with their customers, but they are looking to do even more of this now, which simply makes sense. Although it may not always make practical sense to go with an Apple service just because you own Apple products, the loyalty alone that they enjoy with so many people can be plenty influential.
Investors are also swayed by such things, even though they are driven more by economics than their users are. Apple’s stock is simply legendary, and in its 38-year history it has increased in value by over 400 times.
There have been plenty of ups and downs over all this time. The 2000 tech bubble was particularly hard on them, where their stock lost almost 80% of its value from top to bottom, and three years later, they dipped even lower. Apple’s big rise didn’t even happen until 2009, when our current bull market started. Since then, the Nasdaq is worth over 5 times what it was, while Apple has grown by a multiple of 16. This just isn’t beating the market, it is clobbering it.
Apple now competes head to head with Microsoft for the title of the largest company in the world by market capitalization, and has even taken the lead at various times, even surpassing the trillion-dollar mark a year ago. They are a little under that now but anyone willing to bet they won’t get back there again just hasn’t been paying attention.
Apple’s latest earnings report beat expectations, coming in at $2.18 versus the consensus estimate of $2.09, although this was still off the $2.34 that they earned this quarter a year ago. This was back when the company was worth $1.12 trillion though, and even with as good of a year as they have had in 2019, they still need to add another 10% from here to get back to where they were last August when they hit their all-time high.
While Apple stock did get pretty stung in the last 4 months of 2018, falling from $227.63 to $148.26 to close out the year, they have climbed back up to over $200 now. They pulled this off in spite of all the challenges that they have faced from the trade war with China, and each time President Trump has waived his mighty hand, Apple was one of the first companies people thought of when they winced.
Apple’s iPhone profits have been certainly affected by this, and have declined quite a bit over the last while, but Apple is moving away from such a reliance on their phones and are particularly looking to expand in the services sector. Many have pointed out that Apple has not done much as far as taking advantage of cross-sell potentials to their huge product following, but they are starting to pay more attention now.
Apple Has a Lot of Potential, But They Have to Adapt
It’s not even the size of their following that makes this potential so big, it’s the level of dedication that their customers have, their love of Apple the company. This is the sort of thing that companies can only dream about, and they don’t even dream this big when they do.
Apple’s services business isn’t exactly hitting the mark though and has underperformed analysts’ expectations thus far. These same analysts are still not all that excited about Apple’s prospects with this in the near term at least, but the concern isn’t that their business will decline as it is the growth rate of this side of the business that is expected to decelerate.
Apple’s userbase is also decelerating, but after all these years, this is just a matter of reality kicking in as they saturate their potential market more. We need to keep in mind that they have almost 600 million users, and when numbers grow this large, just growing the base is something worth celebrating.
This is a lot of people to sell more things to, and in spite of the slowing of growth in this sector generally, Apple is assured of a very good market share of this indeed. With shipments of iPhones down 18%, the company needs to make up for this shortfall somewhere, and they are looking to do exactly that.
The planned tariffs for September 1 have Apple’s name all over them, and if any company needs to worry about these, it is Apple. Still though, their stock held up pretty well over the latter part of last week, and while they did drop 4% on Thursday and Friday, this is better than we even could have hoped for with their being so much in the crosshairs of these new tariffs.
In spite of the sheer magic of this company, we still need to be aware that there are some real risks out there for Apple. The business really isn’t going as well as many would hope, and there is real potential for this to get worse now.
In particular, should the broader market take a nosedive, Apple may even be one of the companies that lead the way, as was the case with the pullback of the latter part of last year. The Apple mystique may count for a lot, but even this is made to wilt in the face of a market dip of this sort of magnitude.
Remaining bullish on Apple at this point in time does not seem like such a bad idea at all, but we still need to keep one eye on the door should this fairy tale take a darker turn, for a while at least, which we do need to be on the lookout for.