Apple shares were up over 6% on Monday and now 10% shy of a record high, which sets a high bar for Apple to exceed expectations on the release of its new 5G iPhone.
Today Apple launches its new iPhone in a launch that was delayed from September because of supply chain disruptions caused by the coronavirus pandemic.
Event time: 10am Pacific Time (5pm GMT)
Tagline for the event: ‘Hi, speed’ - a likely reference to the 5G connectivity.
What will the new iPhone have?
The big selling point for upgrading to the new model will be its 5G connectivity. There are expected to be four models released ranging in size from 5.4 inches to 6.7 inches with the smaller ones potentially called the ‘iPhone mini’ and selling at a more affordable price. The 6.7 inch version would be the biggest yet, bigger than the 6.5 inch iPhone 11 Pro Max- and it is hoped it will appeal to customers in China who it is forecast will make up 20% of the device upgrades in the coming 12 months.
Also of note, Apple may offer new details of its iOS 14 operating system - and potentially some accessories including its own-branded wireless charging device and perhaps AirTags for tagging items like car keys with a small Bluetooth device tracked by your phone.
What’s happening with Apple?
The iPhone is still Apple’s crown jewel that brings in 55% of its revenue. That makes any new iPhone a big deal for investors in the stock.
Apple stock has led the pack this year since the work-from-home, mobile device-heavy environment of the pandemic has put the company even more at the forefront of out lives. That has furthered the anticipation for the first ever 5G iPhone.
For years investors have questions how Apple can maintain its margins on iPhones by charging such higher prices compared to the competition. And - unlike almost all ever electronic devices - the price of new iPhones appears to move higher. There were fears the SE could eat into sales of higher-priced models - let's see if they are intensified by the release of the 'mini. But the margins on iPhones are still around half that of the 60% margin gained on its services. That’s what makes September’s news of the Apple ‘One’ probably a bigger deal than today- the company’s target of 600 million paid subscriptions by year-end out of its 1.5 billion iPhone users will be a huge source of reoccurring revenues.
Apple’s legacy hardware product division has matured into single digit growth. The latest iPhone nor any iPhone after it is unlikely to be a blockbuster. Still, the iPhone remains the centrepiece from which Apple’s other products and services grow- and the new release should give the company a boost to offset the now lengthened 4-year upgrade cycle.
The growth is coming from wearables & accessories including the Apple Watch and AirPods as well as services like the App Store and Apple Music. Put together these are growing 27% and contribute 9% to total revenues. It is these divisions that go a long way to explain how in the last two years, the Apple valuation has moved form around 12x forward earnings to 37x forward earnings now. As a point of reference, the tech-heavy Nasdaq index has a PE of 22x earnings. Some of this valuation looks bubbly amid the huge options trading that is going on from retail investors but some is investors re-rating the company like it’s a software company rather than hardware.
Apple share price
At $124, the shares are about $10 below all-time highs and right around the price level in which Apple conducted its 5:1 stock split in August this year. The stock is up circa 65% year-to-date having surged off its March low following the market crash because of the coronavirus outbreak.
The share price survived a drop below its 50-day moving average, which looks to have been a correction within its overall uptrend this year. In a sign of strength, the RSI did not drop into oversold territory during the drop and remains well-off overbought areas above 75.