Our 2014 outrageous prediction for Apple Inc. (NASDAQ:AAPL)
2013 has been an interesting year for the Consumer giant as it has for the company’s shareholders. With huge pressure and expectation in the two years since Steve Jobs passed away, the business has continued to make inroads on a massive scale, as only Apple can.
From a trading perspective, it is no question, a year of two halves – with the share price pretty much exactly where it was this time last year – around $550/share. However, in the darker half of the year – April and July, lows around the $380 level saw many, run for the hills.
Product evolution rather than revolution
This year’s launch, like all Apple events, came under intense pressure to wow the market in the post Jobs era. The new iPad Air was a faster lighter derivative, the retina Mini, also not overwhelming and a series of new smart phones including the iPhone 5s which paved the way for a new operating system.
Apple is dollarizing its existing product range, reflecting the maturity of the products from being the innovators of smart phones and tablets, to now just one of the players in the sector. The company is certainly not the Maverick it was 10 years ago – it simply couldn’t continue to run in that way, and expect to survive. That said, what Apple continues to do, is scale. The company sold 9m of its new smart phone in just the first weekend of its launch. Overall, third quarter sales topped analysts expectations and look set to continue to do so. While margin is down – something we alluded to last year, as Apple makes in roads to markets that wont bare full retail pricing, the volume trade off is certainly paying off. Think of many of the Asian markets, which simply wont bear Western prices, but have sales volumes which are vast.
Since 2001, when the first store was opened, the company’s 400 plus stores have kicked huge goals. Apple’s stores are generating $50m/store/year – a staggering number. To give you some context – David Jones has 35 stores (and they are all big floor spaces) around Australian and recorded sales for $424m for the quarter. If you extrapolate that, multiply it by 4 (to guestimate the year) and divide by 35 stores, that’s about $48m per store in sales! Think how small your typical Apple store is – and that shows a massive spend per square metre – the highest in the US retail sector to be precise! A brutally effective sales model, for the company, yet still extraordinarily pleasant from the customer – a scenario most retailers could only dream of!
This year, in my household, 2 new iPads, a new iPhone 5s (in gold and for the wife), a new MacBook Pro and as always, if anything went wrong, any of the above, they would be immediately replaced. Because it is easy and like most people, paying for convenience and seamlessness is now the norm.
So what next for our Apple Stock Forecast 2014
For Apple, who knows but one thing for sure, there would have to be something big in the pipeline. Our guess relates to wearable technology in some way or form. We also anticipate further inroads into the TV space, as a further possible product that is leveraged out using great interfaces and stylish design.
However, from a trading and investing space, there are a couple of key areas that need to be kept in mind. Firstly, Apple’s job of returning some cash from its vast balance sheet. With $55bn pledged to be returned to investors over the next 3 years, Apple is breaking away from its Jobs era, of hoarding as much cash as possible. One other observation is more visual – is it just me, or does Apple CEO Tim Cook look increasingly like Steve Jobs, as time goes by?
So – our take on Apple is in line with the broader US stock market – where next for the earnings growth?
While volumes will continue to rise, margins will likely get squeezed in a little more, in line with Apple’s expansion into the Eastern markets. Today’s discussions regarding China Mobile, and its potential 700m subscribers, being one such example of potential volume growth.
Equally, what comes next, out of the perfectly shaped anodised Aluminium pipeline will as always be keenly watched. There is no doubt, given its scale and stature as the industry benchmark, that Apple may struggle to be the innovative sector leader it has been to date. However, its ability to extract revenue from a willing client base, is almost second to none. As such, we don’t expect any nasty surprised, in terms of results, providing some support for the stock, especially as it sits mid range between the 380 lows and the 700 highs.
The key variable will be new product and if, true to form, Apple come out with another home run product – combined with its vast distribution capabilities, then there is good upside potential for the stock. With the right mix of the above, $650 is not out of the question – whether you are a fan or not, they do have the runs on the board and even the most cynical of traders would have to acknowledge that, post Jobs, or not.