Apple's (AAPL) Days Of Big Growth Might Be Over
Zacks Investment Research | Dec 11, 2018 01:27AM ET
Apple (NASDAQ:AAPL) has seen its stock price plummet over 24% in the last three months as investors digest what’s next for the tech powerhouse after it signaled that its days of insane iPhone growth are done. Now, the question is are Apple’s days of substantial revenue growth over?
Recent News
News broke recently that could spell even more trouble for Apple in an important market after a Chinese court ruled in favor of Qualcomm (NASDAQ:QCOM) in a patent lawsuit. The Chinese court has ordered a sales ban of some older iPhone models in the world’s second-largest economy, though enforcement isn’t a threat just yet.
However unlikely real backlash in China is amid the ongoing trade dispute, Apple investors need to take a hard look at the company’s recent past and its outlook to help understand what to do with AAPL stock now.
Slumping iPhone Sales
Apple introduced the iPhone in January 2007 and went on to sell 1.39 million iPhone units in fiscal 2007 to help the company pull in $24 billion in full-year revenues. Three years later, in 2010, Apple posted fourth quarter revenues of $20.34 billion on the back of 14.1 million iPhones sold in Q4 alone. Smartphone-driven growth continued at a rapid pace for the next five years and helped the company’s 2015 revenues hit $233.72 billion.
The last couple of years have seen Apple post solid year over year growth after it posted a decline in 2016. But this growth was driven, in large part, by Apple’s newer higher-priced iPhones.
For instance, Apple’s total Q4 revenues surged 20% to reach $62.9 billion, driven by a 29% jump in iPhone revenues. Yet, total iPhone unit sales were flat from the year-ago period. This marked the continuation of an alarming trend because next year Apple’s sales figures will all compete against quarters where its high-priced phones were already on the market.
Short-Term Outlook
Apple’s total fiscal 2018 revenues popped roughly 16% to reach $265.59 billion, driven by nearly a year of iPhone X sales. But the company’s fiscal 2019 revenues are projected to pop just 4.7% to reach $278.16 billion, based our current Zacks Consensus Estimate. Peeking ahead to the following year, Apple’s revenues are excepted to climb only 4% above our current 2019 estimate to $289.34 billion.
Get The News You Want
Now it is all too easy to use the words just and only when talking about these eye-popping revenue estimates. Nonetheless, we have to remember that Apple investors have come to expect a lot from the tech behemoth.
Long-Term View
Investors have grown even more worried about Apple since the company said it would no longer provide iPhone unit sales figures, among other products, which could signal that growth projections are bleak. With that said, Apple has expanded through its services unit that features Apple Pay, AppleCare, Apple Music, and more. The firm’s services business aims to take on Spotify (NYSE:T) , Square (NYSE:SQ) , PayPal (NASDAQ:PYPL) , and many others.
Still, even this key unit showed signs of a slowdown. Fourth quarter services revenues jumped 17% to $9.981 billion, which marked a significant slowdown from Q3’s 31% growth and 34% expansion in the year-ago quarter. Plus, our NFM estimates called for Apple’s services revenues to jump 24%.
Luckily Apple has the money and the track record to give investors at least some confidence that the company will find new ways to grow. In fact, the next big frontier could come as soon as next year when Apple is projected to launch its streaming TV service that aims to challenge Netflix (NASDAQ:NFLX) , Amazon (NASDAQ:AMZN) , Disney (NYSE:DIS) , and AT&T (NYSE:T) . Plus, Apple could easily find new life in a variety of industries similar to Microsoft’s (NYSE:T) push into cloud computing and IoT.
With all that said, it seems that Apple investors need to prepare for a future of between 4% to 5% year over year revenue growth for at least the next year or so.
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Zacks Investment Research
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