In This Article:
Apple (NASDAQ: AAPL) investors have had a rough time of it over the past few months. Since its recent top at $233 per share back in September, Apple's stock plummeted 40% to the $140s after the company's Jan. 2 pre-announcement that it would miss first-quarter estimates, but has since bounced back to around the $150 mark as of this writing.
Is the huge sell-off a harbinger of the end of Apple, or does it present a huge buying opportunity? As I've written in the recent past, I think it's the latter. For a few key reasons.
Apple CEO Tim Cook, right, and Chief Design Officer Jonny Ive, left. Image source: Apple.
1. Services revenue is growing
Even within Apple's disappointing preannouncement of quarterly results, there was good news. CEO Tim Cook reported the company's services segment would be over $10.8 billion in Q1 -- 28% higher than last year. Services include AppleCare, Apple Music, iCloud, and App Store sales (for which Apple earns a 30% commission).
Services will reach an all-time high in every single geography for Apple, said Cook, even the Chinese market, where iPhone demand has fallen off a cliff. That's because services aren't tied to sales of new devices, but rather to the overall installed base. And while some may be nervous about certain companies like Netflix attempting to bypass the App Store's commission, this is relevant to a relatively small amount of the overall services mix.
In addition, Apple should be launching its own TV streaming service later this year, which could further light a fire under the already strong services segment.
I am not sure investors fully understand the magnitude of the investment Apple is putting behind the planned streaming service. Apple is producing shows with Steven Spielberg, Oprah Winfrey, Reese Witherspoon, Jennifer Aniston, Richard Gere, Kristen Bell, La La Land director Damien Chazelle, M. Night Shyamalan, and many others. Apple's installed base of over 1.4 billion devices is a good-sized one to market a streaming service of well-known Hollywood names to. For comparison, the largest streamer, Netflix, had 137.1 million subscribers as of last quarter.
2. It's still attracting users
Despite the China woes, Apple is retaining customers and expanding its user base. According to Consumer Intelligence Research Partners (CIRP), roughly 16% of new iPhone units went to Android switchers in November, which is up from the 11% mark in November 2017.
That's encouraging, because if Apple is still adding users to its ecosystem, iPhone unit declines should eventually find a bottom, even if the iPhone upgrade cycle is lengthening. Putting on my sociologist hat, holding on to one's phone for longer is also likely to make switching operating systems that much more dramatic, which means the likelihood of people switching out of iOS should go down even further.