HSBC just put out a big warning to investors—it is time to sell Apple stock. The news comes as a bit of a surprise because the iPhone maker has been performing well this year and there have been rumors of a big new push into healthcare. However, HSBC says investors should get out of the stock because Apple’s new services business will disappoint. The bank summarized its view this way, saying “Services makes ecosystem more sticky but won’t necessarily enable Apple to recruit more consumers to iPhone … All in, we remain far more cautious on services than some of the numbers in the street might suggest”.
FINSUM: Not only does HSBC think the new services offerings will disappoint on the top line, but they think they will be lower margin too! It is hard to speculate how this might go, but we do think this transition to services will be harder than many expect.
In what could be a major development for super power Apple, it was reported yesterday that the company was inching towards “Apple Prime”, or some sort of bundled service model similar to Amazon Prime. The company may combine news, magazine articles, and television into a single bundle. Some analysts say Apple needs to increase its service-based revenue, such as that built on monthly subscription fees, in order to continue to expand.
FINSUM: If Apple wants to keep growing at 5%, it needs to add the equivalent of a Fortune 200 company every year. That is a huge revenue goal, and this could be a way to do it.
Here are two simple pieces of math: firstly, Apple is currently valued at around $800 bn; secondly, many analysts expect it to rise by 25% in coming months. That means many on Wall Street see Apple becoming the first $1 tn company. There appear to be three key factors which could propel the stock to $1 tn. These are the prospect for higher iPhone prices, increased profitability as “services” become a bigger part of the company’s performance, and more share repurchases. Apple is already the first company worth $800bn. To put its size in perspective, consider that it is worth approximately 60 Twitters.
FINSUM: If the iPhone 8 is as big a splash as it seems like it will be, we wholly expect the stock to reach a $1 tn valuation.
Apple is about to get an interesting new source of revenue. Analysts have been growing in excitement over the possibilities of the new 10th anniversary iPhone, and predictions for high sales are sparking hopes that Apple could make big revenue from used phones. More upgrading by consumers will mean more used phones in the market, and thus more people using Apple overall as people migrate from older Android phones. The used phone market for Apple is predicted to increase from 228m at the end of last year to 300 million by 2018. This could boost Apple’s services business, as it will create more business for iCloud and the App Store.
FINSUM: This is an interesting if underappreciated opportunity for Apple.
This Financial Times article says that President Trump’s love affair with manufacturing is misguided. Trump has made the reshoring of American manufacturing and protections for US producers a centerpiece of his economic plans, yet this piece contends that the most successful economies have embraced broad changes in the global economy. The piece says that employment in manufacturing well never again be as high as in the 1970s, as automation is constantly reducing the need for such jobs. Additionally, the greatest opportunities for the US economy will be in service jobs, especially those in caring. The article also argues that reshoring American manufacturing would raise prices for goods, which would in turn lower the standard of living, shrink consumption, and cut exports, leaving the trade deficit unchanged.
FINSUM: This piece makes some strong points about the weaknesses of a manufacturing centered approach. One of the key counterpoints, however, would be the growth in jobs.
Source: Financial Times