by Marcelo Perez
Here’s What the Bears Are Missing on AAPL Stock
Jing Pan, B.Sc, MA
When a company gets as big and famous as Apple Inc.(NASDAQ:AAPL), it tends to get under a lot of scrutiny. This year, despite both phenomenal top-line and bottom-line growth, investors did not rush towards AAPL stock. Year-to-date, Apple’s stock price gained a moderate 6.9%. However, with continued growth in China and Apple’s services business, the company could get on a steady growth path very soon.
iPhone Sales Bullish for AAPL Stock
In the fourth quarter of fiscal 2015, Apple sold 48.04 million units of “iPhones,” a 22% increase year-over-year. Revenue grew even more, with a 36% improvement year-over-year to $32.2 billion. Note that the fourth fiscal quarter ended September 26, 2015, meaning it only included two business days of sales from Apple’s then newly launched “iPhone 6S” and “iPhone 6S Plus.” (Source: “Q4 2015 Unaudited Summary Data,” Apple Inc., last accessed November 26, 2015.)
Overall, the company is doing great. In fact, it just had the best fiscal year ever.
One of the engines driving that growth was China. It is a widely known fact that Chinese consumers are big fans of the iPhone and the lines are always huge when a new product gets launched. In the most recent quarter, revenue from Greater China surged an astonishing 99% year-over-year to $12.5 billion, helping to drive Apple’s total revenue up 22% year-over-year to $51.5 billion. (Source: “Apple Reports Record Fourth Quarter Results,” Apple Inc., October 27, 2015.)
Some critics might say that Apple’s success in China is not guaranteed in the future due to competitors that offer much cheaper smartphones. Here’s the thing: the iPhone is not just your average smartphone in China, but rather a premium brand and even a status symbol. In a country with a growing middle class, iPhones are bound to become even more popular.
Other than the success of its hardware business in China, Apple could also benefit from growth in its service business in the region. Recently, The Wall Street Journal reported that Apple is seeking to launch its new electronic payment service, “Apple Pay,” in China by early February. (Source: “Apple Seeks to Launch Apple Pay in China by February,” The Wall Street Journal, November 24, 2015.)
Sources said that Apple has struck deals with China’s big four state-run banks. This means users could link Apple Pay with their bank accounts. However, there could be more regulatory hurdles that Apple needs to go through before launching the service in China.
Apple Pay was first launched last year and is now available in the U.S., the U.K., Canada, and Australia. The company hopes to launch it in China before the Chinese Spring Festival on February 8.
At this point, it is uncertain how much Apple would charge for transactions made through Apple Pay in China. In the U.S., the company takes 0.15% of all credit card transactions and 0.5% for each debit transaction.
Services such as Apple Pay could be huge for AAPL stock. You see, unlike hardware products, money could flow in without the need for a product update cycle. In fact, Apple just hit an all-time record in services revenue. In the fourth quarter of fiscal 2015, revenue from services totaled $5.09 billion.
The Bottom Line on AAPL Stock
Despite having a massive amount of cash overseas, Apple has done quite a bit for investors of AAPL stock. The company returned $17.0 billion to its investors through stock buybacks and dividends during the last quarter and has completed over $143 billion of its $200-billion capital return program. With a more than sound balance sheet and growing earnings year-over-year, Apple’s stock price is likely to climb higher.