Apple Is a No-Brainer Investment
Wall Street Daily | Sep 18, 2015 04:35AM ET
Two new iPhones – the 6s and 6s Plus…
A larger tablet – the iPad Pro…
A new Apple TV…
Updated software for the Apple Watch.
All products that Apple (NASDAQ:AAPL) revealed in its latest highly anticipated launch event last week.
And all products that were either leaked or rumored weeks ago.
My colleague, Greg Miller, pretty much summed it all up in a tweet following the event, “No game-changers, but enough innovation to keep sales momentum strong and competitors working hard.”
Indeed. But the most important and unexpected announcement from Apple last week wasn’t actually a product at all. It was a payment plan.
Here’s why this seemingly “boring” development is the only thing investors should focus on…
h2 It’s (Still) All About the iPhone…/h2Despite offering a hefty lineup of products, the $651-billion market cap Apple is still a one-trick pony – albeit an enormous pony!
Nearly two-thirds of the company’s $224.3 billion in annual sales comes from iPhones.
And despite being one of its older products, this percentage has increased over time, not decreased. Take a look…
To put the power of Apple’s iPhone sales into broader perspective, chew on this…
In the last quarter, iPhone sales alone were more than the total revenue booked by any other tech company.
That includes behemoths like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB).
Given the incredible influence of Apple’s iPhone business, it’s easy to understand why Apple shares follow iPhone sales.
As a result, the more customers Apple can get to buy (or upgrade to) the latest iPhone, the higher we can expect the company’s profits – and, in turn, the share price – to go.
That’s why the company’s announcement last week is so important – because it all but guarantees both outcomes…
h2 Apple Gets Into the Leasing Game/h2Apple is jumping into the business of leasing iPhones in the United States and 11 other key markets, including China.
Up to now, consumers could only lease subsidized iPhones on two-year contracts with an upfront payment of a couple hundred dollars.
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But under Apple’s new leasing plan, they can get a new, unlocked iPhone each year, plus Apple Care, starting at a little over $32 a month without any carrier commitments.
The question is: Why in the world would Apple bother getting into the leasing business? Simple…
Growth. More specifically, faster growth. This plan allows them to achieve that by cutting out the telecom carriers and thereby owning more of the end-to-end customer experience.
“We think this program should act as a tailwind for iPhone sales, since they serve to shorten the replacement cycle,” wrote the analysts at Susquehanna.
It already appears to be working, too.
h2 Want Profits? Book ‘Em, Danno!/h2On Monday morning, an Apple spokesperson told Bloomberg that the company is on pace to beat last year’s 10-million unit first-weekend record.
Rest assured, this isn’t a flash-in-the-pan growth spurt. There are oodles of potential upgrade customers out there.
For example, last February, I told you that only 15% of consumers had upgraded to the new iPhone 6 or 6 Plus, leaving 343.4 million potential upgrades in the pipeline. Fast-forward seven months and just less than 30% of customers have upgraded, leaving 282 million potential upgrades still out there.
In the last quarter, Apple sold 47.3 million iPhones. So if it can repeat that number every quarter from here, we’re talking about nearly six quarters’ worth of potential growth.
But of course, Apple only needs four quarters’ worth. Why? Because this time next year, it will unveil the iPhone 7, thereby starting the upgrade cycle all over again.
Bottom line: The only thing that matters for Apple investors is still the iPhone.
So with last week’s “boring” announcement of an iPhone financing plan, Apple virtually guarantees brisk demand in the quarters ahead.
And with shares trading at a mere nine times forward earnings if we exclude Apple’s $203-billion cash balance, the stock remains a “no-brainer” buy in this volatile market.
Ahead of the tape,
by Louis Basenese
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