Apple is among the most financially successful companies in the high-tech industry. The firm remained profitable in 2008 – 2010 when most companies posted losses and it just continues to grow nowadays when many others stagnate. Nonetheless, certain financial analysts believe that going forward Apple will be unable to grow at the same pace as before as the market of smartphones is getting mature, whereas the market of smart watches may be greatly over-evaluated.
“Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers – nor were we fully convinced that these products could move the needle like new categories did in the old days,” said Ben Reitzes, an analyst with Barclays, in a note to clients. “As a result, we believe it is time to step aside, given a maturing smart phone market.”
The analyst is fully confident that Apple will continue to release competitive products going forward. Moreover, even the current product categories will get more useful than they are today and therefore their popularity will increase. But the question is whether the existing categories will be able to significantly grow going forward and be adopted by even bigger part of the market?
Apparently, the analyst believes that it will be impossible to “re-accelerate growth in the in the iPhone category to sustainable double-digit levels”. Without breakthrough products like the iPhone with skyrocketing growth, Apple has all the chances to become a new Microsoft, which market capitalization has not changed dramatically for over a decade.
“We look at a valuation analogy vs. Microsoft from 2000 to about 2010 and see no precedent that large-size tech companies simply start to broadly outperform again after a tough year or two if the law of large numbers is catching up to them and margins have peaked,” said Mr. Reitzes.
The comparison of Apple and Microsoft may not be 100% correct, but it is a reasonable one. Microsoft has not released a breakthrough product since Windows XP and the original Xbox. While both Windows 7 and Xbox 360 are great products that were sold to hundreds of millions of customers, they were not something that changed the market in a way the iPhone and the iPad did. Apple has not introduced any new product categories since 2010. While sales of iPhones now exceed 50 million per quarter, they are not growing as fast as they used to. Meanwhile, investors are interested in rapid growth, which occurs when new breakthrough products are released. As a result, investors start to worry about the future of Apple’s stock, not about the future of the company itself.
KitGuru: Rapid revenue growth is a good thing for a business. But there is a catch. Many companies forget about profitability in a bid to demonstrate fast revenue increase. By contrast, Apple has always thought about how to earn on its new products. Today, Apple earns money on hardware, accessories, software, content and services that are available for owners of iPhones, iPods, iPads and Macs. Meanwhile, the vast majority of Apple’s rivals barely get any profit selling hardware only. At the same time, those very companies from time to time demonstrate solid revenue growth year-over-year. The only problem for such firms is that periodically they find themselves facing either bankruptcy of necessity for a massive reorg, which affects the cost of their stock.