Fewer iPhone users are expected to upgrade to new phones next year because they like the iPhone X so much, but it’s a situation that’s led one analyst to downgrade the stock for 2019, citing expectations of a “material disappointment”.
As cited by CNBC, New Street Research analyst Pierre Ferragu told clients in a note Monday that investors should sell Apple stock because a major gap in sales is looming for next year.
In fact, there’s future demand looks bleak because the majority of those who wanted the best-of-the-best—the iPhone X—already have it.
"The iPhone X has been very successful and well received by consumers. It has been so successful, that we think it has brought forward demand,” CNBC quoted Ferragu as saying.
So far, Ferragu doesn’t see how Apple is going to recoup the loss, and new plans for a lower-priced OLED phone on the portfolio isn’t likely to cut it, with fewer people opting for a change-out.
The analyst is projecting that Apple’s iPhone revenues for 2019 will come in 10 percent lower than Wall Street expectations, with earnings per share over next year and the following coming in well below projections.
"History shows the stock suffers materially when iPhone revenues disappoint," Ferragu said. "This may sound insane, but fits our thesis: iPhone shipments are on a multiple-year decline trend, as refresh cycles elongate, and 2018 was a bump in the trend, as 2016 was."
New Research has put a $165 price target on Apple, down from the stock’s current (as of $9:09 am EST) price of $216.50, against its Monday close of $215.46. Related: Venezuela Undergoes “One Of The Greatest Currency Devaluations Ever”
But does this gloomy revenue picture account for Apple’s other ambitions?
After all, Apple made history on August 2, hitting $207.05 in a bump that made it the first $1-trillion publicly listed U.S. company ever. That was two days after the company posted impressive Q2 2018 earnings showing a robust 17.4 percent year-over-year expansion during the quarter with strong growth across revenue segments, including its legacy iPhone line and Services business.
So, yes, the iPhone was the momentum behind this push, leading to sales that surged 11-fold to $229 billion and net income that grew at nearly 50 times to reach $48.4 billion.
But it’s not just about the iPhone anymore—and Apple knows this. The company’s services segment is now in clear focus. This segment includes revenue from Apple Music, App Store, and iTunes for starters, and the last quarter saw it generate $9.55 billion.
For Q2, services accounted for 17.9 percent of total revenue, so the question now is will Services be able to pick up the pace and make up for the “vacuum” in iPhone X revenue?
Some think so, even if Ferragu isn’t a believer.
“The markets are starting to recognize the value of its platform and services more and more, and that’s what is being reflected in the increase in market capitalization,” Brad Neuman, Director of Market Strategy at New York-based Alger, a growth equity asset management firm, told Reuters.
By Tom Kool for conil.me
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