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

Posted:
in AAPL Investors edited January 2014
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.
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Comments

  • Reply 1 of 35
    crowleycrowley Posts: 6,068member
    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.
  • Reply 2 of 35

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

  • Reply 3 of 35
    Should we shit on this analyst too?
  • Reply 4 of 35
    ceek74ceek74 Posts: 324member
    Well, whaddya know...an analyst with a brain?
  • Reply 5 of 35
    dysamoriadysamoria Posts: 2,353member
    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.
  • Reply 6 of 35
    dickprinterdickprinter Posts: 1,060member
    crowley wrote: »
    Not convinced by this analyst.

    I don't think the analyst is convinced himself.....with only a $590 price target. :\
  • Reply 7 of 35
    canukstormcanukstorm Posts: 1,981member

    "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.

  • Reply 8 of 35
    noelosnoelos Posts: 106member
    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.
  • Reply 9 of 35
    bushman4bushman4 Posts: 806member
    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
  • Reply 10 of 35
    pdq2pdq2 Posts: 270member

    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.

  • Reply 11 of 35
    pdq2pdq2 Posts: 270member

    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.

  • Reply 12 of 35
    newbeenewbee Posts: 2,055member
    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.

  • Reply 13 of 35
    gatorguygatorguy Posts: 21,308member
    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.
  • Reply 14 of 35
    larryalarrya Posts: 552member
    bushman4 wrote: »
    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.
  • Reply 15 of 35
    newbeenewbee Posts: 2,055member
    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.  ;)

  • Reply 16 of 35
    Should we shit on this analyst too?

    Go for it.
  • Reply 17 of 35
    dasanman69dasanman69 Posts: 12,985member
    crowley wrote: »
    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?
  • Reply 18 of 35
    newbee wrote: »
    "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.
  • Reply 19 of 35
    maestro64maestro64 Posts: 4,683member
    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.

  • Reply 20 of 35
    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.

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