Apple stock has been on a tumultuous ride in 2018. Reaching the highest highs in August this year of $225 a share before dropping off a cliff back down to less than beginning of the year lows of $168.49.
Some analysts point to growth in Apple’s services presenting a significant upside to the company’s stock.
Analyst Ivan Feinseth from Tigress Financial Partners wrote “[we] view the recent pullback as a major buying opportunity as the ability to monetize its base of over 750 million iPhone users and expand service revenues will continue to drive further upside in the stock”.
Feinseth believes that there exists a unique opportunity for Apple to earn additional revenues from their services; iCloud, Apple Music, the App Store & Mac Store, iTunes and AppleCare.
As well as from Apple Pay which was released in 2014.
Apple’s services segment has seen rapid growth over the last year. Posting 31% earnings increases for the third quarter of 2018, as compared to Q3 from 2017.
Tim Cook comments that Apple “feels great” about the forward movement in their services sector.
He also commented on the third party applications that Apple offers in their app stores having recently passed $300 million; calling the revenue generated from subscriptions “significant”.
Feinseth predicts that Apple’s subscription and other services will have grown to as much as $50 billion by 2020.
Apple in 2017 set a goal to double its revenue from services to $14 billion per quarter by 2020.
By what we are seeing in the current growth trajectory of the segment, Feinseth may well be proved right as Apple reaching their goal does seem probable.
But is it enough to save AAPL stock?
It’s no secret where the vast majority of Apple’s revenue comes from. iPhone sales accounted for almost 63% of Apple’s total company revenue in Q2.
When people call Apple a “one product company” you can kind of see why when you look at statistics like this.
What’s more for services to even be a relevant segment at all they rely on sales of the core products, namely the Apple iPhone.
The problem I see with Apple stock right now, and especially when it was trading at $225 per share just months ago: Can Apple continue to keep up its iPhone sales?
With new competitors around every corner looking to take some of that valuable market share for themselves, it makes one wonder how long Apple can maintain its winning streak with this one single product.
While I do see growth in Apple’s services as a sign of progress in that segment bringing the promise of greater revenues, the bigger picture is far less clear. Even with a small drop in iPhone sales, revenue loss would be so substantial that any additional revenue from services would pale in comparison.