Recently a popular financial analyst on Wall Street took a cold objective look at Apple’s most recent financial results and then boldly stated: “Apple, a boring stock? As boring as they come!”
The analyst then went on to point out that iPhone sales in the 4th quarter of 2015 were up only 1% versus year ago; suggesting that peak iPhone sales have probably arrived. Concerning revenue, there is no doubt the 4th quarter was one of record revenue for Apple at $75.9 billion but that compares $74.6 billion a year ago, an increase of only 1.7%. Similarly, 4th quarter profits were $18.4 billion, only 2% above the $18.0 billion it reported a year ago.
The author also claimed some dismay about the fact that Apple had returned $153 billion to shareholders in the form of dividends and stock buybacks but the stock itself is about where it began. He then summarized all of this by claiming “basically Apple has become a very boring stock and the only thing to expect is the dividend, and perhaps some long term capital appreciation.” Concerning sales of services, such as Apple TV, Apple Watch, and Apple Music, Beats products, etc., these categories only represent about 20% of Apples total revenue and hence, are not the component of Apple’s story going into the future that one would likely bet on.
Apple has a long history of incredible innovation since the re-emergence of Steve Jobs in 1997. The successful iPod music player was launched in 2001 followed by the iTunes music store in 2003. The iPhone was launched in 2007 and then the iPad in 2010.
Since 2010, what we have basically seen is continual evolution of the iPhone. While about once a year Apple comes up with some bells and whistles to enable it to launch the next version of the iPhone, in most cases these changes have been quite minor, such as making a larger phone to be more competitive with Samsung Galaxy S and incorporating a whole raft of other relatively small features.
Steve Jobs passed away in October of 2011 and the company was placed in the hands of its current CEO whose background is primarily operational in nature. While raging Apple fans don’t like to hear it, the company appears to have stopped innovating at that point. Yes you can point to the Apple Watch and a few other items but for all practical purposes, Apple is now looking like a value-oriented company (dividends and buybacks), rather than a growth company (innovation). No doubt Apple will be a huge cash generator for several years to come but on the other hand, it is clear that the company is moving to the sidelines, with new players with genuine innovation now in the spotlight.
So, what is the learning here? A leader has no choice; innovate or step aside!