Earnings season is getting underway, so this week will be a significant one for a lot of companies. The big banks will all report this week, as will a couple of in-the-news airlines and a few companies whose results are often seen as having broader significance, such as Alcoa (AA). All of those will be of some interest, but for a market that is looking resolutely forward to better times, how informative can past performance really be?
That is why the most interesting release of this week will not be an earnings report at all. Tomorrow afternoon, Apple (AAPL) will launch the latest upgrades to the iPhone, and the fact that their new products about the future, not the Covid-damaged past, will make it far more significant than any earnings report could be this quarter.
Of course, tech world is already awash with rumors, but the consensus seems to be that the new iPhones will come in a couple of models, each with a few sizes available and with 5G capability. This upgrade will also reportedly feature the first major case redesign for several years and a lot of other changes. Some of those, such as the inclusion of 3D Lidar sensors, point to long-term upgrades in future models as well.
It is the first real “super-cycle” since the iPhone 6 four years ago and is being heralded as “…the most significant iPhone event in years,” according to Katy Huberty, an analyst at Morgan Stanley.
So, what does this all mean for the stock?
Well, if you think that this sounds like the kind of hype that makes a miss of expectations almost inevitable, you are probably right in the short-term, but that doesn’t mean that longer-term investors should be selling AAPL any time soon. Based on what has happened during past big product launches, we can paint a picture of the most likely sequence of events:
On that basis, AAPL will climb today and in tomorrow’s pre-launch trading as the hype is heard, spike in the few minutes immediately following the release, then fall for a few days as the naysayers take over the narrative. They will say that there are all sorts of problems with the redesign, that the phone is too expensive, that the screen and case changes are ugly or unwieldy or whatever, any number of complaints that we have heard countless times over the last decade will resurface, and conclude that this launch will be a disaster.
They will be wrong. They almost always are.
Once the initial pre-order numbers come out, we will see once again that iPhone buyers don’t care what the snippy style gurus have to say. The average consumer may not fully understand what “5G” means or implies, but they know, after all the major carriers have been going on about it in TV and online ads for months, that it is something they want, and they want it in an iPhone.
As for the price whiners, I have made the point before that that is an argument based on the false assumption that consumers pay for an iPhone out of pocket. Almost nobody does. They upgrade their phone on an installment basis, and adding an extra five or ten bucks a month to their bill seems very affordable to get the latest and greatest, even if that latest and greatest is a 5G capability that they don’t fully understand, and a 3D sensor that most will never use.
The simple fact is that most iPhone users by now know the schedule of Apple’s releases and they make purchasing decisions accordingly. When a major remodel comes, it is time for them to upgrade, and that is going to happen regardless of what features the new phone offers. They will pay the $30 per month extra on their bill rather than the $20 they just finished paying quite happily, and they will get used to the redesigned phones which seem so clunky to early reviewers.
That is exactly what happened in late 2018, as the bad reviews following that launch saying that nobody would pay $1000 for a phone were proven completely wrong. At the time, I wrote here at Nasdaq.com that the weakness would be a great opportunity to buy cheap stock, and those of us who bought at around a quarter the current price found that to be true. That is just the way it is, so almost regardless of what the new phones look like or what whizz-bang features they might contain, they will continue the inexorable rise in Apple and the stock will be at new highs before long.
* Disclaimer: The author is long AAPL, will stay that way, and may add to his position in the event of any pre- or post- launch weakness in the stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.