Apple NASDAQ: AAPL iPhone 14 was recently released and investors will be wondering, whether the phone will have a significant impact on Apple’s revenue. iPhone 14 was released on the 8th of August, and critics have pointed out that there isn’t that much difference between the previous phones and the new ones. The disappointing unveiling led to Apple's stock retreating during market hours by close to 1%. Meanwhile, Apple is down close to 4% during Tuesday's trading hours, as a hotter than expected inflation weighed on the markets.
The iPhone 14 has been priced at $799, meanwhile, the iPhone 13 has been discounted to $699. Apple killed the iPhone mini, and instead now has two main models a 6.1-inch iPhone 14 and 6.7 inches iPhone 14 plus. Apple has introduced a number of new features for the latest phone including the addition of satellite connection capabilities, the addition of eSim capabilities, 8k video capture, and the new A16 chips. Apple’s fans won’t be overly impressed, but considering the stickiness of the product, expect the phone to continue dominating sales.
iPhone 13 continued to dominate throughout last year, and despite similar commentary about a lack of improvement last year, the phone beat all expectations and push itself into second place behind Samsung in terms of market share. iPhone 14 may see similar improvements and Apple’s decision not to hike the price is likely to play a key role in gaining market share over the next year. Apple currently has around 20% market share in the smartphone market, and considering countries like China, where the phone has seen the biggest traction are likely to see improvements in consumer demand due to lockdowns easing up on average, Apple’s market share could quickly rise to 22-23% in the near future.
iPhone sales during the second half are projected to come in slightly higher, despite a global slowdown, current production outlook is estimated at 240 million units, and sales could go as high as 300 million units. iPhone revenue came in at $40 billion during the last quarter, but due to a number of economies specifically, China opening up and improving sales from the new iPhone 14 model, the next quarter could see iPhone sales rise to $55 billion in the fourth quarter.
Apple’s business outlook
Apple’s stock has remained relatively resilient despite the continued pressure on it from the broader market. iPhone continues to increase its market share both domestically in the US and in the global markets. Surprisingly Apple now has over 50% of the domestic market share according to the latest reports, with sales surging in recent months. Apple, unfortunately, is increasingly relying on iPhone sales to drive revenue and while it has seen some support from the App store, the increasing dependence on the iPhone could be a worry for investors.
Taking a look at Apple’s fundamentals and technical.
Apple’s valuation remains elevated, and considering dividends are increasingly being preferred to growth in the short term, the stock remains susceptible to a correction. The current put-call open interest remains relatively neutral at .94, indicating investors clearly believe that the stock is priced correctly considering that Apple has continued to gain market share, they may be right, but, it remains to be seen whether valuations will hold as global economies face increasing headwinds. And the decision to keep the price of the latest iPhone steady may actually have been a good decision all things considered. Regardless, free cash flow remains healthy, but as Apple increasingly returns cash to investors, cash levels have continued to fall over the past few quarters. The current price-to-earnings of 26, could mean the stock heads back to $175 if the next couple of quarters come in line with expectations.
Risks to the stock
But with the current economic climate risks remain to the downside. The latest inflation print coming in hotter than expected, with the core CPI continuing to rise, and input costs will be under pressure. Apple’s margins could come under pressure as rising costs, and the latest cost iPhone costs remaining flat, could adversely affect fourth-quarter results. In addition to the rising costs, the rest of Apple’s products except for the App store have continued to struggle as well, with falling desktop and laptop sales weighing on revenue. But, for now, the future remains bright, and the coming quarter should be an exciting one, as investors look to new high's for the stock.
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