Munster: What Apple investors will be watching after Sept. 12

“iPhone cycles are made or broken in the March & June quarters.”

From a note to subscribers by Loup Ventures’ Gene Munster:

Expect Investor Optimism to Be Tempered with Concern Near Term. Over the past year, investors have been anticipating a shift in the iPhone growth from flatfish in FY17 to high single digits in FY18 (we’re modeling for 8% iPhone unit growth in FY18).  Shares of AAPL have risen 54% during that time driven by this improved iPhone growth outlook along with a more optimistic view that Services growth will be sustainable in the 15-20% range through 2020. For the balance of 2017, we expect history to repeat itself and optimism around the next iPhone to be tempered with concern about the iPhone cycle’s tail, specifically wavering investor confidence in iPhone growth in the Mar-18 and Jun-18 quarters (iPhone cycles are made or broken in the March & June quarters).

Don’t Let Short-Term Distractions Minimize the Long-Term Apple Story. Despite near term shifts in investor optimism, we remain positive on Apple’s story long-term. Over the next year, we expect to see two camps emerge on the Apple story: The first camp will remain positive on Apple despite little to no iPhone growth over the next few years if Services meets Cook’s goal of y/y growth in the high teens. The second camp will be more pragmatic, wanting to see Apple make a push into AR & auto to set the stage for higher growth over the next decade.  We remain optimistic that Apple will be a significant player in the shift to AR-driven computing with potential growth from Apple’s car project representing option value.

My take: A third camp will not be shaken from their conviction that Apple is doomed.

5 Comments

  1. Fred Stein said:

    Hooray, the old term, “camp” is back. Aren’t we tired of ‘cohort’?

    0
    September 2, 2017
  2. Fred Stein said:

    “What this Apple investor (me) will be watching after September 12”
    1) Not iPhone sales
    2) AR Apps.
    3) AI from Apple

    Apple can outrun anyone in SmartPhones and wearables. Samsung and Huawei come close. But the future is AI, with AR as the little sibling.

    0
    September 2, 2017
  3. Robert Paul Leitao said:

    I find it remarkable analysts continue to focus primarily on iPhone growth cycles for share price valuation models while the factors influencing the company’s long-term fiscal performance and growth prospects are far more complex and much broader than the narratives suggest.

    For example, the recent multi-year episode of the dollar’s high valuation negatively impacted recognized revenue, gross margin and net income over the past several quarters.

    Each of Apple’s regional revenue segments have unique and distinct revenue growth cycles. For example, in FY2018 Greater China will deliver revenue growth for the first time since FY2015 due to the coming model year’s new iPhone form. But Japan and the Rest of Asia Pacific revenue regions have delivered revenue growth this fiscal year. Apple’s performance in Europe is influenced by foreign exchange factors and the pace of economic recovery across the continent.

    Apple is a long-term play and there are far more pieces in motion than the delivery of new iPhone handsets. A more in-depth look “under the hood” and a greater understanding of the different dynamics in each of Apple’s five regional revenue segments would be of greater value than forecasting iPhone unit sales alone.

    In my view, iOS 11’s release is as important to Apple’s global developer community as the much-anticipated new iPhone handsets are to consumers. Ultimately it’s the attractiveness of the entire eco-system that drives Apple’s performance.

    I give Gene Munster credit for his long-term view of the company’s growth prospects. But in the end no matter which sentiment “camp” one chooses, it’s net income growth and the company’s fundamentals that drive Apple’s share price performance.

    5
    September 2, 2017
    • David Drinkwater said:

      I agree particularly strongly with the “regional” thought process:

      Even (especially?) at my own place of work, I see India overlooked. It’s not a wealthy nation (not as wealthy as China, and even probably the USA), but its *huge*. 1.4 billion in China, 1.3 billion in India (and growing way faster than China). The USA is ~0.35 billion, nearly an order of magnitude smaller.

      I do think the iPhone “8” will be significant, but there are regional issues and installed base that cannot be overlooked. If iOS 11 brings features that are back-compatible to iPhone 6, that’s a huge number of iPhones to monetize.

      0
      September 3, 2017

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