iPhone 16 won't be compelling, says analyst with no compelling data
Investment analysts at Barclays say that the 2024 iPhone 16 range won't reverse what it sees as falling iPhone demand, and consequently has lowered its stock price target.
Mockup of a possible iPhone 16
Barclays has only cut its Apple price target by a dollar -- from $161 to $160 -- but it calls the stock underweight and has no expectation of it improving.
"We expect reversion after a year when most quarters were missed and the stock outperformed," said Barclays analysts in a note to investors seen by AppleInsider. "Our checks remain negative on volumes and mix for iPhone 15, and we see no features or upgrades that are likely to make the iPhone 16 more compelling."
According to Bloomberg, Apple's stock was down $1.40 in pre-market trading. At the time of writing, it has now dropped 2.92%.
Barclays was similarly dismissive of the iPhone 15 range ahead of its launch, however. In that case, the presumption was less about compelling features, and more that the analysts were certain the iPhone 15 Pro would see a steep price increase.
Investment analyst Tim Long has also tended to be pessimistic about Apple since Barclays resumed covering its stock in 2019. At that point, Barclays predicted Apple's Services growth would slow and that 2020's move to 5G would not make a "meaningful difference" in sales.
The iPhone is considered the most important product category for AAPL with about 50% of revenues stemming from it. However, with sub-seasonal quarterly growth for five in the last six quarters and with negative number revisions, Barclays expects "this trend to continue."
Supply chain checks have pointed to production cuts and sell-through weakness, as well as a shift in product mix towards base models over Pro versions.
On Mac and iPad, the note explains they basically showed "no growth pre-COVID, but are still running 20-30% above those levels despite the rest of the industry correcting."
A deceleration in growth for Services in 2024 and 2025 is expected, with growth thought to be about 10% and 8% respectively, well below the previous 20% growth estimate. Barclays warns of the impact of Google TAC and that investigations into the App Store could intensify.
Apple's advertising is "the best business in Services," with high double-digit growth. Apple Music and Apple TV were expected to have higher attach rates, but they're calculated at 8% and 3% penetration of the iPhone base.
For Apple TV+, Barclays estimates that Apple is losing about $6 billion per year, due to a lack of scale and a high cost of content.
Rumor Score: Unlikely
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Comments
I.e. if their most profitable clients are looking to load up on AAPL then they will put out cautionary notes to the public about AAPL to allow their clients to buy into depressed demand and thus secure lower average per share prices. Reverse behaviour if looking to offload shares in bulk then talk up the stock to sell into strong demand to get as much for the shares as possible.
Looking objectively at AAPL and unit sales for a minute. Yes handset sales are somewhat threatened as people stretch their upgrade cycles longer and longer. This is somewhat offset with building momentum in new markets like India and Indonesia with huge populations, rapidly growing affluence and low current base for Apple.
Overall selling devices may be less of the story for AAPL in the next few years depending on how some pivotal rulings may or may not change the landscape. This is where one should keep one's eye as services have about 2x gross margin compared to devices and if continuing uninterrupted will soon be 50% of overall gross margin contribution.
Cutting AAPL targets due to handset concerns is quite dumb. Being somewhat concerned with seismic shifts in the services revenue is a better thing to be focused on and caution is needed here.
AAPL needs to better articulate their story of how they will prosper in a world with multiple app stores, competition of in-app payments, search engine placement competition or bans. I.e. what is the growth model with minimal control of the eco-system vs. strong control as it is now.
Personally I think Apple has a bright future ahead of itself as most customers will remain loyal to the brand and the service ecosystem. It is an aspirational product and ecosystem in most countries and as a comparison LMVH, Hermes and others are doing exceedingly well despite there being a mee-too universe of copycats. On the other hand Hermes does not stop the wearer from having Zara trousers together with a silk scarf. Apple currently limits the customer from mixing and matching devices and services with others for the most part.
Within a couple weeks, this is all forgotten. Then VisionPro comes out in a month or so and regardless of how expensive it is, and how limited an audience it appeals to, and how expensive it is, is does sell and creates crowds of people at Apple stores waiting to try it, and the stock goes back up. The same people who buy on today's fall, sell their holdings and make a few dollars per share on the short term trade.
If you are playing the market short term maybe, but in that case why would it matter in January when the model in question isn't due to ship until September/October?
If you are looking at a long term investment, one model is just a blip on your screen.
Most iPhone users will want to upgrade to a new iPhone. Most, would simply put off upgrading until something better comes along or bite the bullet if waiting isn't an option. Their options are few and far between.
Either way, Apple is likely to get the sale eventually.
A smaller number would probably consider switching but would that dramatically impact sales?
A recent report said Apple had been impacted and seen a sales decline as a result of not offering a folding option but the decline in that report was estimated at less than 10%.
Is it relevant? Yes, because those sales were lost from the most premium segment but overall I doubt it worries Apple too much.
Obviously, some markets will be more fickle than others. It is far more likely that a Spanish iPhone user will switch than a US iPhone user.
Another point is that there is currently a massive push into intelligent cars in China and a lot of that intelligence is coming from external players who also manufacture phones.
If you can get folding phone that integrates deeply with your car and everything else in your ecosystem, that will obviously appeal to some users. If Apple isn't offering a comparable feature set that might work against sales.
But that is the bigger picture and has little to do with whether the next iPhone model will be compelling or not.
For new potential features look no further than current Android phones:
New image sensors for cameras.
Variable physical aperture.
Ultra fast charging (wired and wireless)
Improved lenses
More options on finish
Two way voice satellite communication.
Ehem, AI.
Flip and folding options.
There is still a lot that can be offered. Would some of that be compelling?
It's a phone.