The level of excitement that many Apple lovers were expecting from last week’s product launch didn't actually play out. Particularly not in comparison to some of the company's previous new product launches.
Apple shares (NASDAQ:AAPL) dropped 1.2% on September 12 after Chief Executive Officer Tim Cook unveiled the smartphone maker’s latest gadgets. It was the biggest decline on launch day since 2015. The first iPhone, introduced a decade ago, triggered an 8.3% jump after the announcement.
Apple’s new iPhone XS, pronounced “ten S,” has a 5.8-inch (14.7-cm) screen and will be sold at a starting price of $999. The XS Max, the largest iPhone to date and one of the biggest on the market, has a 6.5-inch (16.5-cm) screen and will start selling at $1,099. A fully loaded XS Max with 512GB of storage sells for a staggering $1,449, making it Apple's highest-priced iPhone yet.
The reaction from the general public to these new products was also lackluster, according to LikeFolio, which tracks social media sentiment and market behavior. The company found that the number of people who intend to buy the new Apple products following the presentation was the lowest measured since 2015.
Judging by the share performance, since reaching a record high of $229.67 on September 5, it seems Apple’s stock rally is losing some steam following its remarkable journey to becoming the world’s most valuable company this summer. But if you look back the Apple’s share price history, its stock has rebounded strongly after other post-launch lull periods.
There’s nothing to suggest this won’t happen again. Any weakness in Apple stock should be taken as a buying opportunity.
iPhones Will Remain Indispensable
There is no doubt that iPhones continue to be the single largest contributor to Apple's success and its role in the company's revenue growth shouldn’t be underestimated. The segment generated 56% of Apple’s $53.3 billion in sales during the third quarter.
But Apple has been taking steps to reduce its reliance on the iPhone, with an increasing focus on its services revenue and its growing "other products" segment. The latest example of this divergence was the launch of the new Apple Watch Series 4.
The device is able to take an electrocardiogram to detect an irregular heartbeat and start an emergency call automatically if it detects a user falling down, making it appealing to older customers. The reviews for this product were extremely positive and threatening for competitors. Shares of fitness device rival Fitbit (NYSE:FIT) fell 6.9% on the day of the Series 4 announcement.
While those businesses may eventually offset the slowing growth of the iPhone, we think Apple still has the power to fetch higher prices for its flagship devices without slowing demand in a big way.
Warren Buffett—whose Berkshire Hathaway (NYSE:BRKa) has become the third-largest shareholder in Apple and bought more shares of the company even as they hit a record—believes the iPhone is “enormously underpriced” compared with the utility it offers. In a recent interview with CNBC, the world’s most successful value investor said that customers will continue to buy iPhone, which has become “indispensable,” for its huge clientele.
Bottom Line
Despite weak performances by Apple stock following many of its new product launches, we continue to remain bullish on the company's future. It will continue to benefit from strong business fundamentals and a general shift from social media stocks to hardware giants. Companies such as Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) are under pressure due to data privacy issues and there are indications that investment money is flowing from software to hardware.
In the short run, Apple stock may also come under pressure after President Donald Trump unveiled additional tariffs on $200-billion worth of Chinese goods. Apple has warned that the tariffs could hurt sales of its devices, including Apple Watches and HomePod speakers.
However, in our view, any share price weakness due to these temporary setbacks should be taken as a buying opportunity by long-term investors.