Today’s Headlines: Apple Fails to Impress Investors

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Today’s Headlines:  Apple Fails to Impress Investors
September 15, 2015

New Products, Little Buzz

Is the thrill gone for Apple? Apple product announcements used to generate both investor and user excitement in the days prior to the unveiling, followed by a post-announcement drop in the stock. Excluding the original iPhone announcement in 2007, typical iPhone introductions created around a 5% stock increase during the prior month based on anticipation, with a drop on the announcement day averaging 0.8%. Last week's announcements broke that pattern in a negative way.

For weeks heading into its latest product presentation, which occurred Wednesday at the packed Bill Graham Auditorium in San Francisco, Apple stock has been on a slide, down 18% from its peak in mid-July. That slide, combined with lesser expectations on the product release, left hope that there would be an upward bounce in the stock after the announcement. Unfortunately, the post-announcement stock drop held as Apple closed down 1.9%.

Investors were concerned because nothing groundbreaking was unveiled. iPhone enhancements were modest, as the new 6S gets a megapixel boost for both front and rear cameras, a faster chip, and a "3D touch" pressure-sensitive touch screen that allows access to different menus based on the pressure applied. It remains to be seen if that's enough to entice consumers to upgrade from the iPhone 6, or if iPhone 5/5S users will skip straight to the 6S instead of opting for the now cheaper 6.

Increments, Not Innovation

The ardent Apple faithful were impressed with the variety of improvements, as they are with any Apple release. Others, however, expressed disappointment at the lack of true innovation in any of the announcements and the drift toward features that have already been incorporated by others. Playing catch-up is not Apple's strong suit.

What else was announced at the big event?

As the show was dubbed “Hey Siri”, it’s not surprising that Apple TV now includes Siri, the voice-operated assistant, in the control system. Viewers can use a voice-operated system to call up their favorite programs with sophisticated searching capabilities. It's a new feature for Apple, but not innovative. The new remote control and interesting new apps are positive additions, but it would be a stretch to call any of them a game changer.

Apple Watch now has a new operating system, new apps including Facebook Messenger, and new band choices, among other changes — but again, the true innovation was in the previous introduction of the Apple Watch itself.

In short, this round of announcements was heavy on incremental improvements and short on innovation.

It's Not Steve Jobs' Apple Anymore

Steve Jobs famously said, "Who wants a stylus?" at the original iPhone introduction and that any device maker who introduces a stylus had "blown it." The appearance of the Apple Pencil to correspond with the larger iPad drives home the point that Jobs is no longer with us and that Apple has moved on.

Time will tell whether Jobs was right. While the Apple Pencil reportedly has impressive tracking and feel capabilities, it constitutes a $100 accessory being pitched to an audience that's skeptical, if not outright hostile, to the heretical concept.

As for the new iPad, the iPad Pro, its larger 12.9-inch size and optional keyboard is novel for an iPad but brings it closer to the features of Microsoft's Surface. Apple appears to be targeting businesses and positioning the iPad Pro as more of a PC replacement, but simply offering a package of tablet, stylus, and keyboard doesn't bring an overly compelling case to Apple's tablets.

It's unfair to equate an introduction of a product that Steve Jobs would likely never have introduced and the death of groundbreaking innovation at Apple — but it does make one wonder where the next product innovation path lies.

Apple Tweaks the Providers

One of the more interesting announcement involved sales strategy. Apple is intruding into the service provider's strategy and offering to sell their phones directly to consumers at full retail price spread out in installments. These phones are unlocked and remain so, allowing you to switch easily between service providers. As a further incentive, Apple is offering upgrades to the newest smartphone model at the one-year mark.

Service providers count on phone deals to retain loyalty, especially with the shrinking availability of traditional two-year contracts with subsidized phones. The providers must not be pleased, but what sort of retaliatory options do they have against Apple?

Since service providers have moved away from subsidizing phones, consumers are beginning to realize how much their phones actually cost. As a result, they are more likely to put off upgrades regardless of whether upgrades are through the providers or direct with Apple. Apple's strategy is simultaneously to entice consumers to upgrade more often while keeping more of the proceeds. That puts even more pressure on a steady stream of significant improvements and innovative product designs. We'll see if Apple is up to the task.

The Takeaway

Clearly, Apple can't maintain the stratospheric growth they have shown in the past — at a certain point, it becomes mathematically impossible. Therefore, investors are questioning whether Apple is truly settling into a maturity phase, with solid but unspectacular growth, or just stuck in a less innovative cycle. Steven Milunovich, an analyst with UBS, is in the former camp. He noted that Apple is "now mainstream and not the upstart" and that the previous rapid growth is being replaced by "annuity-like revenue streams."

Investors seem to be hedging bets at this point. (NOTE: Writer is long on Apple.) They aren’t willing to give up on Apple yet as a major growth vehicle, but aren't convinced that Apple Watch, Apple Pay, and Apple TV are the new growth engines, either. The upcoming holiday shopping season should give us a pretty good indication of the acceptance of the Apple Watch and how many iPhone users are ready to upgrade.

Even with an arguably disappointing set of product announcements, Apple still brings in enormous revenue, with a fiscal third quarter revenue of $49.6 billion, and its P/E ratio is relatively healthy in the 12-13 range, especially for a tech stock. It's never a good idea to count Apple completely out with respect to groundbreaking future innovations — and even if they are beginning to settle into the path of a mature company with solid if not spectacular "annuity-like" growth, is that such a bad thing? Every portfolio needs a dependable stock or two.

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Beverly | 09.15.15 @ 18:04
Apple will always have it's diehard fans, but their innovations have been slowing down, while competitors are catching up, if not passing them in some areas. They definitely aren't the only "cool" innovators anymore.
trish | 09.15.15 @ 18:05
I think Apple lovers will always stay true. I think the company is trying to do too much at the same time. I don't think Apple is on the decline towards disappearance, but I think they are coming up on their plateau. They will rebound in my opinion.
Kailie | 09.15.15 @ 18:07
I have always been a huge apple fan, but lately they ave been failing to impress.
Nancy | 09.15.15 @ 18:11
The products that Jobs had his hand in could only last so long and I think it is showing.
Britt | 09.15.15 @ 18:11
I honestly like the new design... I am considering getting one.
Jackie | 09.15.15 @ 18:13
Apple needs to slow down on bringing out new products. It seems every few months there is an iphone upgrade.
Kelley | 09.15.15 @ 18:16
Not enough new, and no new massive upgrades to the outward design, either. They need to step up their game.
Sarah | 09.15.15 @ 18:20
There are two camps... those who love all things Apple, regardless and those who do not. Seems like with their recent lackluster announcement some may be jumping camps.
Kamie | 09.15.15 @ 18:21
There is nothing that Apple does but copy their competitors, and then you have their die hard fans try and say Android is copying them. But, honestly, in my opinion Apple products are not worth the price when you have to turn around the next year and spend the same amount again on a new version or you get updated out.
Kyle | 09.15.15 @ 18:22
Apple seems to be going down hill with a lot of their things recently... need to up their game if they want to survive.
Elaine | 09.15.15 @ 18:23
I still like my Apple phone but I admit, I don't go after every new item that they come out with.
Sara | 09.15.15 @ 18:23
I have never been an Apple fan. Mostly because they seem to never really upgrade. I can see why investors are bored.
Rychana Vingia | 09.15.15 @ 18:24
I have had iPhones for years and have always been happy with them but I do feel the upgrades aren't as great as before.
Daniel Dohlstrom | 09.15.15 @ 18:24
The simple fact is people are well aware that 99% of the "innovations" Apple makes a big deal about are nothing new and have been on other platforms some for years. People will still support them but they no longer buy into the hype and see it as false "innovation".
Morgan | 09.15.15 @ 18:25
Apple seems to be releasing things way too quickly when it comes to their new products and I think that's a big issue
Steven | 09.15.15 @ 18:25
Never cared for Apple. Too many upgrades but no real upgrades... if that makes sense. Not really an impressive product anymore.
Morgan | 09.15.15 @ 18:25
Apple seems to be releasing things way too quickly when it comes to their new products and I think that's a big issue
Morgan | 09.15.15 @ 18:26
Apple seems to be releasing things way too quickly when it comes to their new products and I think that's a big issue
Katie Greene | 09.15.15 @ 18:33
I'm so tired of Apple looking for ways to cheat you out of money. I was given an Apple phone and the only reason I use it is that I would have to spend money to buy a new phone. I'm not all that impressed. Especially that you can't even take your battery out. You have to pay them to do so. No matter what happens, they look for a way to charge you. Even customer service costs money.
Christina | 09.15.15 @ 18:37
If you plan to have all the hoopla and build up, Apple, you really should plan on announcing something new and innovative!
gracie | 09.15.15 @ 18:37
Apple fans are a pretty loyal and appreciative lot but for those who are just in search of the newest, coolest, most versatile gadgets there are so many great choices that have risen in reliability and function since Apple first launched their products
Angie | 09.15.15 @ 18:40
I'm not much of a techie, but even I was kind of disappointed at the "unveiling" news. It seemed flat...
Crystal | 09.15.15 @ 18:42
Not really an Apple fan. I always thought their products were more difficult
Meredith L | 09.15.15 @ 18:45
I don't have an iPhone but here are my thoughts on this. Give the introduction of new phones a break! Ever wonder why Girl Scout Cookies are so popular? Because they're only available once a year. Come on, Apple folks! Give people time to get bored with their phone so they can binge on the next one. This doesn't have to be an annual roll out. Give people a chance to think WOW again.
Courtney | 09.15.15 @ 18:50
I don't really use Apple products, but every phone is the same. I just don't get it.
Irene | 09.15.15 @ 19:03
I have never really been an Apple fan and I think that new tiny tablet in a watch is silly.
Erin | 09.15.15 @ 19:27
Honestly, I've never understood the draw to Apple products. They seem overpriced for what you get.
Zanna | 09.15.15 @ 19:31
Maybe they're just waiting to see if there are bugs in the new "next big thing". Perhaps people are ready for virtually indestructible product, instead of one that breaks if you sneeze wrong.
Kathryn | 09.15.15 @ 19:37
I'm honestly planning to switch to a Galaxy after my contract ends. Apple is... Over done and now becoming super cheap
Bobbie | 09.15.15 @ 19:37
I'm not sure if it's that the thrill is gone with Apple, or that the cell carriers no longer offer the phones at a discount rate. I love Apple, but don't jump at every new model that is offered and went from an iPhone 4 to a 6+. People may just be hanging onto their phones longer now that we have to pay full price.
Steffanie | 09.15.15 @ 19:47
I love my Apple products but will have to say I am not impressed with the newest phone. I could take it or leave it.
Owen | 09.15.15 @ 19:49
I am a die hard Apple fan..... I think I've owned every device they have came out with in the past ten years..... I was however not impressed this time around.
Christina | 09.15.15 @ 20:16
I like my Apple phone,but I don't upgrade every time something new comes out .I would go broke trying to keep up with them.
Heather | 09.15.15 @ 20:19
I've had an iPhone and was not impressed. Went back to Android. I think with all the technology companies out there the competition is becoming more of the same.
George Middleton | 09.15.15 @ 20:22
I think Apple will keep going strong, They will come out with something else that will blow everyone away. They have so far.
Scott | 09.16.15 @ 16:55
Excellent analysis. While Apple's P/E ratio is average, it's EPS are still phenomenal. It makes me think Apple is undervalued in the marketplace.
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