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Apple Inc. (NASDAQ:AAPL) – stock gains on new product and service announcements

  • Apple Inc. (NASDAQ:AAPL) conducts its annual unveiling of its new product range
  • Tuesday 10th saw it upgrade the old and bring in the new
  • The new Apple TV+ streaming service was the star of the show. Its price point ($4.99 per month) undercuts major rivals
  • Apple look like it is trying to nudge consumer spending behaviour towards a one-stop-shop pattern, which could open up new revenue streams

Apple’s annual unveiling of its new product range is becoming something of a highlight of the business calendar. This year’s September event was held on Tuesday 10th September and offered many analysts their first chance to see the new products at close range. However, it is not just about gadgets, as investors are invited to assess the future health of one of the world’s largest public companies.

Source: Reuters

 

Earnings

The event also offers up hints regarding consumer habits at the higher end of the spending spectrum. This year, in particular, there is a shift by Apple towards offering a one-stop-shop style of service to its customers. The firm’s ability to diversify its revenue streams will be the determinant of success or failure. The firm’s share price is currently trading off a price to earnings ratio of 17.63, and that number is already forecast to slide to 13.51 by 2021.

Apple PE ratio:

Source: Nasdaq

Most analyst reports pick out the new Apple TV+ streaming service as the highlight of the event. Entering a crowded field, the firm has interestingly decided to compete mainly on price. The service, which starts on 1st November will be available for $4.99 per month and available in over 100 countries. A parallel gaming service, Apple Arcade, is also being rolled out. Interestingly, the $4.99 per month charge on this product also undercuts competitors such as Google’s cloud gaming offering Stadia.

Source: Polygon

The bread-and-butter business lines of iPads and iPhones have been upgraded in technical terms, but this year there are no exciting releases. However, the firm is in a fairly unique position due to the strength of its core brand. The question for shareholders is whether the proposed plan means it can leverage off that successfully.

 

Extracting revenue

The introduction of a triple-lens/wide-angle camera on the iPhone 11 brought the handsets of the Cupertino, California, based manufacturer back in line with the peer group. On a technical feature such as this, there had been some surprise at Apple lagging rivals such as Samsung. The fix reflects that the new range of handsets might not be the most exciting launch in the firm’s history. However, it does show that it has been working extensively at fixing issues relating to the inner workings of its devices.

There are other signs that the firm is looking to extract whatever revenue it can from existing product lines:

  • Older models of iPhones are due to be sold at lower prices. The technological advances in the iPhone 11 support the provision of two tiers of product and pricing.
  • iPad — the seventh generation of iPad will retail from a starting figure of $329. It will feature a retina display and an eight-megapixel camera. The dedication to upgrading what is ‘under the hood’ extends to iPads as well as iPhones, and the firm claims its built-in A10 Fusion chip is two times faster than the chips in the top-selling PC.
  • The Apple Watch Series 5 starts at $399 for a GPS version. An upgrade to the model with 4G network connectivity comes in $100 more expensive at $499.
  • The firm is reopening its flagship store on Fifth Avenue, New York. The unveiling is to occur on 20th September, the same day as the launch of iPhone 11.

 

Spreading the net 

The new services are building a more complex and holistic approach to the relationship between consumer and service provider. For example, buyers of an iPhone, iPad or Mac will get a free annual subscription to the TV+ service. This potentially draws hundreds of millions of viewers to the service and would instantly take the streaming service into the big-league of the TV streaming world. The competitive pricing on the Arcade platform also enables consumers to take on a suite of services and plays on the inertia of subscribers once they have signed up to a service.

Ben Bajarin, an analyst with Creative Strategies was quoted by Reuters as noting how the TV service, a $5 a month Arcade gaming service and the base model iPhone 11 seem designed to draw in users for the longer term:

“We weren’t expecting Apple Arcade and particularly Apple TV to be priced as aggressively as they were… They know once consumers get into their ecosystem, they don’t leave.”

Source: Reuters

As the breakdowns below shows, the market has reacted well to the news on the upgraded product range.

Source: Reuters

Apple stock chart:

Source: Nasdaq

 

 

Aggressive pricing

Brands don’t come much stronger than Apple, but its pricing on the TV Streaming and gaming services reflects a willingness to get involved in tough price competition. Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, was speaking with Reuters when he said:

“I think the pricing on the Apple TV service was definitely a positive surprise… That’s why you’re seeing the hammering in some of the other video service-related names like Netflix, Amazon and Roku. Clearly, that was a positive that people were happy to hear.”

Source: Reuters

This year, the September event saw Apple share how it is looking to leverage off its brand to draw revenues from other areas. The firm is a major bellwether for the global economy, so a lot of hopes ride on the back of its performance. The share price is still trading below its all-time highs but appears well supported at the $190 level.