Plenty of folks are buzzing over Apple’s shift to services. From Apple Arcade to iCloud to Apple TV+, Apple’s got a new lucrative business stream which could pick up some of the slack from falling hardware sales.
Keybanc analyst Andy Hargreaves isn’t convinced, however. In fact, he points out that not only are services a competitive market (which everyone knows), but that Apple may actually be headed in the wrong direction.
Analyst: A tough future in services?
Hargreaves’ note points out that, despite Apple’s growth, its ability to rake in money from users is headed in the wrong direction. He notes that gross profit per user has declined at a 10% annual rate over the last five years.
“If we are to call Apple a services company, we should evaluate it on typical services metrics of user growth and revenue and profit per user,” Hargreaves wrote. “Apple’s user growth is decelerating due to market saturation and its gross profit per user has been declining. … These are not particularly attractive metrics for a services business.”
Hargreaves doesn’t buy the idea of services as a replacement for declining hardware sales either. In fact, he sees the two as “part of a cohesive whole.” Services are a part of the Apple ecosystem, and so declining sales means declining growth.
He continued that:
“We believe Apple’s Services narrative is largely priced in, as AAPL’s valuation no longer appears attractive relative to other large services businesses.”
Finally, he noted that iPhone sales have been “stagnant” over the past year. “The high-end smartphone market appears highly saturated and we see limited opportunity for significant share gains,” he wrote. “This suggests iPhone user growth will continue decelerating.”
Apple stock is up this year
Despite Hargreaves’ gloomy outlook, Apple is currently performing well. Its shares are outpacing the broader stock market in 2019. Stock is currently up more than 40% this year. That compares to the S&P 500′s 19% gain.
Recently Apple recaptured its $1 trillion market cap after first crossing that milestone last year. Currently, the company is valued at $219.89. That gives Apple a market cap of $993.722 billion.
Do you think services will offer Apple the boost it hopes it will? Which of its various offerings do you think has the most potential? Let us know your thoughts in the comments below.
Source: CNBC
