Sell the house. Sell the car. Sell the kids. Take every penny you own and invest it in Apple stock, because the company is about to go gangbusters.
The big news from yesterday’s earth-shattering earnings call is that this is a company that is extremely confident about its financial future.
Apple has come under fire recently for not innovating. You’ve heard the whining: Apple’s lost its mojo. There have been some nice updates to existing products, but Apple’s done nothing lately to realign the universe. It’s been four long years since it’s last biggie — the original iPad. Where’s the latest product that reshapes the modern world?
To many observers, it looks like the company has been treading water in the two-and-a-half years since Steve Jobs’ death. Android is seating Apple’s lunch, and Apple’s got nowhere to go but down. Apple’s over.
But that narrative is nonsense. Wednesday’s earnings call — and the gobsmacking 7-to-1 stock split — clearly telegraphs that Apple’s executives have something huge up their sleeves. Maybe a couple of things. Maybe a lot of things.
If you’ve been paying close attention to the news and rumors, 2014 looks like it’s shaping up to be Apple’s biggest year in decades.
Apple’s stock split is a big deal. Seven-to-one stock splits are fairly rare (two-to-one splits are the most common). But not only is the stock getting a big split, Apple is investing an enormous $130 billion in buying it back. The stock is “significantly undervalued,” said CEO Tim Cook with characteristic understatement.
Without the buyback, investors would undoubtedly have been spooked by such a gigantic split, which dilutes the pool significantly. But with Apple pumping such enormous sums into the market, it’s a gigantic win for investors.
Why such a large split? Apple says it’s to make the stock more affordable to a larger pool of investors. The price will drop from about $525 per share to about $75 per share. Individual investors may balk at paying upward of $500 for a single stock but would be probably be happy to buy handfuls at $75 a pop.
Some on Wall Street think this is foolish, and will attract investors who aren’t committed to the long-term health of the company. But to me it says that Apple is supremely confident about the stock’s potential value. Apple has only split its stock three times in the past, and always at a 2-to-1 ratio. “That should show you how much confidence we have in the future of the company,” Cook told The Wall Street Journal in a rare post-earnings-call interview.
Despite the handwringing about the lack of new product categories, Apple is an extremely healthy company. Its Q2 2014 was the company’s biggest non-holiday quarter ever, and it followed the record-breaking 2013 holiday season, which saw new sales records for iPhones and iPads. Apple’s sitting on $150 billion in cash, and profit margins are still in the 30 percent range, despite popular lower-cost products like the iPad mini and iPhone 5c, which dilute profits. Even the venerable Macintosh is gaining market share, growing in the last 31 quarters when the overall market for computers has been shrinking by double digits.
But what’s coming up is what’s really exciting. None of this is official, but a close read of the rumor mill strongly hints that Apple is coming up with at least two major product categories this year. Maybe four major categories, or possibly even six.
Cook said so himself, declaring onstage at AllThingsD, “We have several more game-changers in us.”
Apple’s next big things?
Here’s what could be coming down the pike.
Phablet iPhones: iPhones with larger screens are all but guaranteed this year. Consumer interest in phablet-size iPhones is off the charts, and there are too many leaks for such devices not to be pending. If and when Apple releases bigger iPhones — and they are all but a lock — they are going to sell like proverbial hotcakes. The cliche will be updated to “selling like iPhone Sixes.”
New Apple TV: Apple certainly has some kind of new television experience in the pipeline, one that is very different from the current Apple TV. The hardware is unclear, but rumors point to a significant UI redesign and an App Store that includes games. On the content side, Apple has picked up former Hulu executive Pete Distad to handle negotiations with content companies for the Apple TV. It’s rumored to arrive in September or October.
eCash: Say goodbye to your wallet. Apple is getting serious about mobile payments. It already has TouchID, which offers limited payments through the iPhone 5s fingerprint scanner. The company has been recruiting experts in the field and already has a huge head start. During Wednesday’s earnings call, Apple said it already has a whopping 800 million iTunes accounts (many of which are linked to credit cards). It’ll soon be 1 billion. By contrast, PayPal has about 100 million customers and Amazon about 160 million.
Health monitoring and management: The combination of a yet-to-be-confirmed Healthbook app in iOS 8, as well as the long-rumored iWatch health wristband, will launch a new category of health monitoring and management.
Acquisitions and new hires: Apple has acquired 24 companies in the last 18 months, Cook revealed on Wednesday’s call. It’s also snapped up a bunch of great talent, including several designers with expertise in textiles and advanced fabric-manufacturing techniques for Jony Ive’s design team. Perhaps the most important hire is Angela Ahrendts, the former CEO of British fashion house Burberry, who takes charge of Apple’s retail stores next week.
Huge capital investment: Apple has plowed billions into factories during the last three years. The last time Apple spent money like this was in the late 2000s, when it switched most of its devices to sleek, unibody designs. Part of this investment is a huge new Sapphire plant in Arizona that’s going to make screens for hundreds of millions of devices.
I’m not an investment adviser and this should all be taken with a pinch of salt. But the clues indicate Apple is up to lots of big things, and some of them will come to fruition this year. It all fits Apple’s established pattern: Take fractured markets (like health, wearables, biometrics and eCash) and make them easy and coherent. And most importantly, make them part of Apple’s tightly integrated digital ecosystem.
That means more new Apple converts, more long-term Apple customers and, ultimately, more dollars dumped atop Cupertino’s giant pile of cash.
Even though Apple’s stock soared in after-hours trading following Wednesday’s call, now is the time to get invested. Like Cook says, it’s an undervalued stock — even as it continues its rise, it’s still a good buy.
If I were you, I’d be robbing the kids’ piggy banks, selling blood and digging under the sofa cushions to get in on Apple’s next big things.Related