Apple Inc. (NASDAQ:AAPL) Stock’s Services Revenue Growth Is Slowing
As Apple stock jumped amid the increase in the company’s dividend and share buybacks, and Tim Cook’s celebration of record Services revenue, the deceleration in the growth of Apple’s Services business seemed to have been totally overlooked. Nonetheless, Services revenue increased 16% year-over-year last quarter, down from the 19% YoY gain in the previous quarter.
Those who are bullish on AAPL can make some valid arguments about why the growth may have decelerated. For example, Q1 is much seasonally stronger than Q2, and growth will inevitably decelerate, due to the Law of Large Numbers.
Still, the fact that the growth of the unit that’s supposed to rescue Apple stock slowed is definitely a very bad sign for AAPL stock.
Services Revenue Growth Isn’t Enough for Apple Stock
This one is pretty simple. Apple’s Product revenue dropped by a bit less than $5 billion year-over-year, driven a great deal by the iPhone revenue decline and a bit by a YoY Mac sales slump, while Services revenues increased $1.6 billion YoY. Also not helping is the fact that the cost of Services revenue rose nearly $350 million YoY, or over 20% of the Services revenue increase.
But the main point is that, as things stand now, the increase in Services revenue isn’t coming close to make up for the decline in the company’s Product sales.
Streaming and Innovation Won’t Be the Answer
As I’ve written several times previously, streaming won’ be the answer for Apple stock. There’s tons of competition in the streaming sector, with everyone from Netflix (NASDAQ:NFLX) to Comcast (NASDAQ:CMCSA) to Disney (NYSE:DIS) to Amazon (NASDAQ:AMZN) already in the space or preparing to get in it. And given Apple’s lack of original programming, its streaming offering probably won’t be extremely popular.
Nor is technical innovation very likely to rescue Apple stock. A couple of years ago, I used to be one of the few who realized that AAPL under Tim Cook wasn’t very innovative. Now many people are writing about that issue. So anyone who expects some sort of new invention to rescue AAPL stock is very likely to be sorely disappointed.
Valuing Apple Stock
Within six months, I think investors will finally realize that Services won’t enable AAPL’s revenue to grow going forward and won’t rescue AAPL stock. At that point, the valuation of Apple stock will drop to the level of other, older tech names that have some good products but aren’t growing.
HP (NYSE:HPQ) and IBM (NYSE:IBM) come to mind. HP is trading at nine times analysts’ consensus 2019 earnings per share estimate, while IBM is trading at 10 times the consensus 2019 EPS estimate.
Let’s say that in six months, analysts’ consensus 2020 EPS estimate for AAPL is 20% below its current $12.76, as analysts realize that Apple’s streaming offering isn’t going to be very profitable. That would drop the consensus estimate to $10.21. If we put a 9.5 multiple on Apple stock, which is halfway between the multiples of HP stock and IBM, we get a six-month price target for AAPL stock of $97.
I think it could definitely happen.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 216.71.
The projected lower bound is: 201.67.
The projected closing price is: 209.19.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 3 falling windows in the last 50 candles–this makes the current falling window even more bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 65.9465. This is not an overbought or oversold reading. The last signal was a sell 6 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 63.05. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 30. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 6 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -3.270 at 208.480. Volume was 4% above average (neutral) and Bollinger Bands were 27% narrower than normal.
Open High Low Close Volume___
204.290 208.840 203.500 208.480 32,443,112
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 206.94 191.93 192.36
Volatility: 35 25 39
Volume: 29,695,468 28,045,054 34,165,924
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC gapped down today (bearish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
APPLE INC is currently 8.4% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 69 periods.
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