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Wall Street's 'love affair' with iPhone unit sales, and not Apple's ecosystem, seen as misguided

post #1 of 36
Thread Starter 
Investors place too great an emphasis on Apple's total iPhone unit sales every quarter, without giving enough consideration to the company's transition to greater monetization of its unique ecosystem of services, one analyst believes.

iPhones


Timothy Arcuri of Cowen and Company believes that going forward, Apple will focus on offering users a "vastly superior software experience" on the iPhone platform, he said in a note to investors on Tuesday. He predicts that the company will eventually transition into secure mobile payments via iPhone, adding to its suite of valuable services such as iTunes and the App Store.

"The Street's love affair with units continues to miss the transition that is underway to a services-based monetization phase," Arcuri wrote.

Analyst Timothy Arcuri expects that going forward, Apple will focus on software and services, making its ecosystem potentially the company's greatest asset.Emphasizing his thesis was Apple's announcement from earlier Tuesday, in which the company revealed that total App Store sales exceeded $10 billion in 2013, with $1 billion spent by customers in the month of December alone. Developers keep a 70 percent share of applications they sell on the iOS App Store, while Apple takes a 30 percent cut for upkeep of the store and hosting of applications.

Arcuri noted that prior to 2013, Apple developers had earned $7 billion in cumulative revenue, meaning that last year alone effectively doubled the total payout to iOS developers.

"The (roughly 100 percent) year over year developer revenue growth seen in 2013 is well ahead of AAPL's overall growth rate and suggests the iOS ecosystem remains the dominant mobile platform for developers," he said.

He estimates that the iOS installed base has now downloaded as many as 70 billion applications cumulatively, representing year over year growth of up to 50 percent in calendar 2013.

Cowen and Company has retained its "outperform" rating for AAPL stock, and continues to hold a price target of $590.
post #2 of 36
Pretty understandable that Wall Street looks to iPhone units, since that's their biggest selling product and has their highest margins. They make very little comparatively on services, and there's little evidence that will change any time soon. Wall Street looks to the money, not the tangential offerings. Not convinced by this analyst.

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post #3 of 36

It's probably because the iPhone is the most popular vehicle that Apple's services and software are delivered. 

post #4 of 36
Should we shit on this analyst too?
post #5 of 36
Well, whaddya know...an analyst with a brain?
post #6 of 36
Quote:
Originally Posted by wakefinance View Post

Should we shit on this analyst too?

Just Wall Street in general. They're largely a bunch of near-sighted greedy opportunists who have destroyed the economy... and taken advantage of even that.
post #7 of 36
Quote:
Originally Posted by Crowley View Post

Not convinced by this analyst.

I don't think the analyst is convinced himself.....with only a $590 price target. 1hmm.gif

Why does Apple bashing and trolling make people feel so good?

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Why does Apple bashing and trolling make people feel so good?

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post #8 of 36

"Analyst Timothy Arcuri expects that going forward, Apple will focus on software and services, making its ecosystem potentially the company's greatest asset."

 

Given that services are not exactly Apple's strong suit, I sure hope so.  The future is about hardware + services.

post #9 of 36
It's January; price of stock recently has been in a $10 band of $550 and he has a target of $590 labeled as an 'outperform'. He must thing the rest of the market is going to be pretty poor or that 7% is a strong return.
post #10 of 36
This is one of the few AnAlists that has it right "The Street's love affair with units continues to miss the transition that is underway to a services-based monetization phase,
It's only. Normal that iTunes revenue will hit a saturation point ......... However have no fear the secure payment system will more than make up for the iTunes saturation
post #11 of 36

Although some folks here seem to think that news of Apple's biggest competitor in the smartphone space, Samsung, is inappropriate for AppleInsider, I'm surprised there wasn't more notice of Samsung's big-time warning to the markets yesterday. They announced they're going to miss revenue and earnings by a mile when they report later this month.

 

They tried to blame it on increased bonuses (seriously!) but this, at best, would explain only a part of the earnings shortfall and none of the revenue. (...and just on the face of it - "we're going to miss all financial expectations this quarter, because we've given out so many good-performance bonuses"?)

 

Anyway, I was irked (although not surprised) that bad news for Samsung (especially in the smartphone space) translates into a market hit on AAPL.

post #12 of 36

Re: Samsung, some details. Most of the commentary sees it as Samsung withering under Apple's pressure. So Apple goes down.

 

Also, after this news, Samsung only closed down about 0.5%...although the last three months, the stock has drifted down ~10%. Which is to say, all (insider trading) information leaks.

post #13 of 36
Quote:
Originally Posted by Crowley View Post

Pretty understandable that Wall Street looks to iPhone units, since that's their biggest selling product and has their highest margins. They make very little comparatively on services, and there's little evidence that will change any time soon. Wall Street looks to the money, not the tangential offerings. Not convinced by this analyst.

 I agree, Apple makes 30% on it's iTunes and app store. If Sammy or any of the other dumb phone manufacturers made this kind of percentage on it's revenues, wall street would be all over them ... and that 30% is AFTER they pay the developers, don'tcha' know. Trust me, Apple is doing OK. Just because Wall Street like to sell "ice to Eskimos" and are masters at "spin for the good of Wall Street" at the expense of the "investors", none of this has any bearing on how Apple does as a company. There's a huge difference between customers who buy product and "investors" who buy shares.

Apple is not Appl ...... Please learn the difference!    
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post #14 of 36
There's been several articles recently on the fast dropping smartphone prices. IDC is reporting about 13% lower in 2013 compared to 2012. This year is already seeing some major pricing pressures that even Apple probably won't be completely immune to.
melior diabolus quem scies
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post #15 of 36
Quote:
Originally Posted by BUSHMAN4 View Post

This is one of the few AnAlists that has it right "The Street's love affair with units continues to miss the transition that is underway to a services-based monetization phase,
It's only. Normal that iTunes revenue will hit a saturation point ......... However have no fear the secure payment system will more than make up for the iTunes saturation

Apple is a hardware company. Services (and resulting ad revenue) are Google's game. I'm not sure this guy has it so right. From my armchair, I think where the analysts have it wrong is considering market share more than profit. I doubt Apple becomes about services, unless there are no other options.

iPhone 5 64GB, iPhone 4S 16GB, mid-2011 iMac, Apple TV 2nd Gen, iPod Nano

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post #16 of 36
Quote:
Originally Posted by CanukStorm View Post

 

Given that services are not exactly Apple's strong suit, I sure hope so.  The future is about hardware + services.

"services are not exactly Apple's strong suit"  ?? .. Really ??  Is there another retail chain making more money per sq. ft. than Apple, that has representation worldwide? That's a pretty good "strong suit".  How about another music, movie and TV retailer selling the amount that iTunes does, or another App Store on desktop or one on mobile ? ... These are all pretty good examples of Apple's "strong suit" .. imho.

 

I have a theory about why we, as a group, seem all to eager to point out, what we perceive as a weakness in Apple. I sometimes do it too, and I'm not sure there can be a bigger "fanboy" than me (altho' a diet is my #1 resolution this year ... but I digress) .  I think it's because, for so long, Apple has been seen as a "weaker fish" in a large pond and no one, except Apple customers, knew how good Apple products really were ... and we could never understand why the rest of the world failed to see what we knew to be true. 

Now, of course, the rest of the world is jumping on the bandwagon, and us "old timers" are wondering when they will all start to abandon Apple for the next "flavour of the month" ... and leave us wondering all over again.

 

I guess we'll have to have faith in "the Apple crew" that has grown Apple to the top of the heap to keep on doing what they're good at ... producing and selling the "best in class" products and services that they have been synonymous with for a long time now ... that, and the attitude that I really don't care how big the bandwagon is ... as long as I still have many reasons to be on it.  ;)

Apple is not Appl ...... Please learn the difference!    
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post #17 of 36
Quote:
Originally Posted by wakefinance View Post

Should we shit on this analyst too?

Go for it.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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post #18 of 36
Quote:
Originally Posted by Crowley View Post

Pretty understandable that Wall Street looks to iPhone units, since that's their biggest selling product and has their highest margins. They make very little comparatively on services, and there's little evidence that will change any time soon. Wall Street looks to the money, not the tangential offerings. Not convinced by this analyst.

Did you not read the article?
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post #19 of 36
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Originally Posted by newbee View Post

"services are not exactly Apple's strong suit"  ?? .. Really ??  Is there another retail chain making more money per sq. ft. than Apple, that has representation worldwide? That's a pretty good "strong suit".  How about another music, movie and TV retailer selling the amount that iTunes does, or another App Store on desktop or one on mobile ?

Just FYI those aren't services.
post #20 of 36
Quote:
Originally Posted by Crowley View Post

Pretty understandable that Wall Street looks to iPhone units, since that's their biggest selling product and has their highest margins. They make very little comparatively on services, and there's little evidence that will change any time soon. Wall Street looks to the money, not the tangential offerings. Not convinced by this analyst.

You probably correct and the Analysis see that apple is only making $0.30 on ever $1 sold through the store and with their way of looking at thing that is only 30% of margin and the hammering apple on the fact they are under 40% of margin on the hardware and software. But they really should be looking at for the $0.30 that make on ever sale what is the cost of that sale, remember they expend no R&D $ to make what is sold on the store, they only thing to factor in here is their overhead cost to make the $0.30 and I suspect it less then $0.10 but apple does not report these costs its rolled up as part of their total operating expenses which most of it goes to the support of designing their own products.

post #21 of 36
Quote:
Originally Posted by dasanman69 View Post


Did you not read the article?

Don't make Crowley mad, dasan. He's a smart guy, although a bit "wordy!" :)

 

Best.

post #22 of 36
Quote:
Originally Posted by christopher126 View Post

Don't make Crowley mad, dasan. He's a smart guy, although a bit "wordy!" 1smile.gif

Best.

Apple's ecosystem and the hardware go hand in hand. The more people buy into the ecosystem the more they'll continue to buy iPhones. Though the analyst didn’t come right out and say that it is the message conveyed. I'm not doubting his intelligence but sometimes reading between the lines is more important than what's actually being said.
"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
"Just because something is deemed the law doesn't make it just" - SolipsismX
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"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
"Just because something is deemed the law doesn't make it just" - SolipsismX
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post #23 of 36
Quote:
Originally Posted by dasanman69 View Post


Apple's ecosystem and the hardware go hand in hand. The more people buy into the ecosystem the more they'll continue to buy iPhones. Though the analyst didn’t come right out and say that it is the message conveyed. I'm not doubting his intelligence but sometimes reading between the lines is more important than what's actually being said.

Agreed, I was trying to be funny! :)

post #24 of 36
Quote:
Originally Posted by dasanman69 View Post

Apple's ecosystem and the hardware go hand in hand. The more people buy into the ecosystem the more they'll continue to buy iPhones. Though the analyst didn’t come right out and say that it is the message conveyed. I'm not doubting his intelligence but sometimes reading between the lines is more important than what's actually being said.
Oh I agree, and think what you're saying is basic common sense, but I'm not clear on why this analyst thinks Wall Street should care. Wall Street follows the money, and the money is (mostly) in the hardware sales. Is he just saying that Wall Street should bear in mind the stickiness of the iOS ecosystem? I think that's already priced into sales forecasts and expectations. It doesn't need any separate consideration.

Genuinely not sure what the analyst's point could be beyond that.

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post #25 of 36
EDIT: Mobile site is driving me nuts

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post #26 of 36
Quote:
Originally Posted by christopher126 View Post

Don't make Crowley mad, dasan. He's a smart guy, although a bit "wordy!" 1smile.gif

Best.
Thanks... I think.

I don't get mad often, just a little irritated with some people.

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post #27 of 36
Quote:
Originally Posted by Crowley View Post


Thanks... I think.

I don't get mad often, just a little irritated with some people.

Yeah, the "wordy" comment was me trying to be funny.  I was just trying to lighten it up a bit. If I want "squabbling," I can just talk to my GF! :)

 

I enjoy both your's and Dasan's posts! :)

 

Best.

post #28 of 36
It's all cool bro, I take wordy as a compliment 1smile.gif

I'd much rather be wordy than... whatever the opposite is.

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post #29 of 36
Quote:
Originally Posted by Crowley View Post

Oh I agree, and think what you're saying is basic common sense, but I'm not clear on why this analyst thinks Wall Street should care. Wall Street follows the money, and the money is (mostly) in the hardware sales. Is he just saying that Wall Street should bear in mind the stickiness of the iOS ecosystem? I think that's already priced into sales forecasts and expectations. It doesn't need any separate consideration.

Genuinely not sure what the analyst's point could be beyond that.

I don't think Wall Street takes into consideration the stickiness of the ecosystem. They view the iPhone like many products that are once popular and can go bust at a moments notice. iPhone sales have been so high that many believe it can only come down. IMO sales will at worst level off but I don't ever see them going down.
"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
"Just because something is deemed the law doesn't make it just" - SolipsismX
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"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
"Just because something is deemed the law doesn't make it just" - SolipsismX
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post #30 of 36
Microsoft, once they had a huge installed base of the Windows OS, was able to monetize that for many years. And that was by selling just the software and no hardware. Apple earns high margins on hardware, gives away the OS, and then takes 30% of 3rd party software sales. Apple in the mobile space is becoming the modern-day version of Microsoft in its ascendency with all the PC hardware makers added on top. Apple is a colossus and will become even bigger. The market may not see it correctly, but the money keeps piling up; that is what businesses are in business to do; pile up the money.
post #31 of 36
Quote:
Originally Posted by RadarTheKat View Post

Microsoft, once they had a huge installed base of the Windows OS, was able to monetize that for many years. And that was by selling just the software and no hardware. Apple earns high margins on hardware, gives away the OS, and then takes 30% of 3rd party software sales. Apple in the mobile space is becoming the modern-day version of Microsoft in its ascendency with all the PC hardware makers added on top. Apple is a colossus and will become even bigger. The market may not see it correctly, but the money keeps piling up; that is what businesses are in business to do; pile up the money.

Except Apple isn't afraid to change. Microsoft had such a head start with a mobile OS and they let it languish with no updates for years. Never once did they imagine what the smartphone could and would evolve into until Apple showed them.
"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
"Just because something is deemed the law doesn't make it just" - SolipsismX
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"I got the answer by talking in my brain and I agreed of the answer my brain got" a 7 yr old explaining his math HW
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post #32 of 36
Quote:
Originally Posted by Crowley View Post

I'd much rather be wordy than... whatever the opposite is.

Succinct? Lapidary? Terse? Brief?
post #33 of 36

Lapidary?  You mean laconic?  

 

Apple's 30% split of the app store revenue will become very profitable as the scale increases.  They used to say that the 30% from iTunes sales was not that profitable and just went to cover the expenses of running and curating the site.  But as the installed base grows from 1/2 billion users to 1 billion users, their incremental expense to run the app store and iTunes store will not increase proportionally.  So growing SCALE in Apple's future will help insure its relevancy among the developer and music artist's community for years to come and keep it from getting swamped by the growth of Android through ultra-cheap device proliferation.   

 

And I too am surprised the analyst only sees a future share price of $590.

post #34 of 36
Quote:
Originally Posted by dysamoria View Post


Just Wall Street in general. They're largely a bunch of near-sighted greedy opportunists who have destroyed the economy... and taken advantage of even that.

 

PBS had a Frontline edition last night examining insider trading, basically hedge funds with inside connections from employees, totally illegal. Scum bags are apparently the norm on Wall Street. Lots of ‘em sent to jail and fined and the investigations continue.

post #35 of 36
Quote:
Originally Posted by wakefinance View Post


Just FYI those aren't services.

While technically correct, for the purposes of this discussion, anything that is not hardware can  be called services. When Apple first suggested building their own retail chain of stores, the industry thought they were nuts ... a store to sell 6 or 7 different products ???.. Really ?? ... but the art of selling is, in itself, like performing a service. Some companies are lousy at it, Apple is excellent at it ... that's my point.

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post #36 of 36
Quote:
Originally Posted by dasanman69 View Post


 ........ sometimes reading between the lines is more important than what's actually being said.

I could not agree more ... in fact, I would say, that is usually the case.

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