Wall Street Analyst Notices Weaknesses in AAPL Stock’s Armor
Andrew Uerkwitz, an Oppenheimer & Co. Inc. analyst, has warned that “Over the next decade we believe the stock will generally underperform the market.” The analyst sees Apple Inc. (NASDAQ:AAPL) as having become too complacent. He warns that the company will continue to rely on the “iPhone” for revenue.
Indeed, Uerkwitz warns that AAPL stock could suffer as the company lacks the “courage” to pursue innovation in artificial intelligence (AI) or cloud-based services. Uerkwitz says that Apple Inc. simply cannot match the hyper levels of growth it has seen over the past two decades. (Source: “Apple faces a ‘decade-long malaise,’ says analyst,” CNBC, November 21, 2016.)
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Perhaps, as Elevation Partners’ Roger McNamee remarked on CNBC‘s “Squawk Alley,” it’s “ridiculous” to accuse Apple of not having the courage to lead. (Source: “Apple (AAPL) Oppenheimer Note Is ‘Clickbait’ but, ‘Conclusion Is Correct,’ Analyst Says,” The Street, November 21, 2016.)
But this is no time to relax for Apple stock. For the first time since 2001, Apple’s annual revenues have dropped for the year that ended in September. Revenues from the sale of its flagship product, the iPhone, fell 13% in the fourth quarter.
While analysts predict that phone sales should return to growth in the next fiscal year, long-term revenue growth will be less than five percent, predicts Brian Colello of Morningstar, Inc. (Source: “Why Apple Should Buy Disney,” The Siver Times, November 17, 2016.)
Indeed, given the market context, AAPL stock does have speed bumps ahead. The smartphone market has matured and Apple is struggling to assert itself with the dominance it has shown in the past with its new products. At this point, the fastest way to boost future earnings and growth is to make a major acquisition. (Source: Ibid.)
Credits: Flickr.com/Stiff Meister
Uerkwitz may have jumped the gun on Apple, but his main point is valid—especially when looking at the long term. The world is full of companies that once dominated their sector, only to have disappeared altogether or split into different entities, barely shadows of their former selves.
Apple, for now, might still post the big earnings. It may add to that through a major acquisition. But, ultimately, it has to encourage creativity and innovation. Those are the key ingredients for long-term success.
Consider what has happened to Hewlett Packard or International Business Machines Corp. (NYSE:IBM), two of the tech sector giants until the 1990s. Hewlett-Packard split into two companies: HP Inc. (NYSE:HPQ) for printers and personal computers (PCs), and Hewlett Packard Enterprise Co (NYSE:HPE) for infrastructure, services and software. Meanwhile, IBM might as well have split, given that it has suffered 18 consecutive quarters of revenue decline. In 2011, IBM’s earnings dropped from $107.0 billion to $81.7 billion.
Apple has been warned.
