Apple Inc. (AAPL): Netflix, Services Business and China are Not Strong Catalysts

Apple Inc. (NASDAQ: AAPL) the stock is trading well after the stock got bullish comments from investment firm Wedbush. Wedbush’s analyst Dan Ives said in his note that according to several reports, U.S and China are very close to reaching a deal to end the trade war. The analyst believes that this would be big, positive news for Apple and the overall technology sector. Ives reiterated his “Outperform” rating for the stock with a price target of $200. However, we believe that Apple remains a Sell at this point.

Analysts across the board now have a consensus that Apple’s iPhone business is in shambles. In January, Apple Inc. (NASDAQ: AAPL) CEO Tim Cook accepted in an investor letter that the company had not expected a slowdown in the Chinese market. As a result, Cook said, Apple’s iPhone sales are expected to drop in China dramatically. Walter Piecyk of BTIG recently noted in a program on CNBC that Apple is looking for its next growth driver after a loss in the iPhone sector. The analyst thinks services, video, and content remain the most significant areas for Apple to grow.

This is why Apple investors are focused on services, says research analyst from CNBC.

The Street is now betting big on Apple Inc. (NASDAQ: AAPL) services business. In the first quarter of 2019, Apple’s services business revenue grew by 19%. In China, where iPhone business is getting whacked, the company reported record growth for the services sector. In the latest report by Thinknum, Apple’s software jobs surpassed hard jobs for the first time since 2016. This shows that the company’s major push into the software services industry. However, it’s important to note that we should not put all our eggs in the Services basket. Goldman Sachs recently pointed out that Apple’s services business is relying heavily on Google. Google contributed about $9.5 billion in traffic acquisition costs to Apple. Goldman Sachs believes that Apple needs to launch its own “Prime” bundle service for video content to cut its reliance on Google.

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But Apple’s launching its own video service large enough to rival those of Amazon’s and Netflix is not expected anytime soon. Instead, the company will need to make a big acquisition in this domain. Recently, J.P. Morgan analyst Samik Chatterjee said that Apple Inc. (NASDAQ: AAPL) should acquire Netflix. However, this acquisition would possibly cost a whopping $189 billion.
These scenarios, even if possible, will take a lot of time to bear fruit. Apple’s business model was so reliant on iPhones that the company will need more than five years to create an alternative stream of revenue as big as the iPhone. Therefore, we don’t see any short-term catalyst to buy Apple stock.

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Published by
Fahad Saleem

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