Apple Inc. began to send the iPhone 6S to those lucky few in line for an early unit on Friday morning. The Cupertino firm will reveal sales for the first weekend next Monday, but it has already revealed that it expects the new smart phone to beat sales of the iPhone 6 in 2014. That’s going to be a big boost to the nervous traders holding Apple shares, but there’s reason to reject it at face value.
Here’s an overall look at the market that the iPhone 6S is entering into, what sell side research firms on Wall Street are saying about the device, and a look at how traders are approaching valuing Apple given the way that sales are set to line up this year.
It’s one of the most precarious seasons ever for Apple. Here’s what the world thinks iPhone 6S sales will bring.
Apple to reveal iPhone 6S sales
iPhone 6S pre-orders opened up on September 12. The countries covered for shipping on the initial release date of Friday September 25 included the United States, the United Kingdom, Canada, China, France, New Zealand, Puerto Rico, Singapore, Australia, Germany, Hong Kong, and Japan.
On Monday September 14 Apple put out a press release claiming great demand for the iPhone 6S. The firm said that it was “on pace” to beat the numbers of phones it sold over the first iPhone 6 sales weekend in 2014.
Apple usually reports pre-order numbers for its big release, but the firm decided to forego that in favor of more muted, directional guidance this time around.
We’re expecting Apple to reveal a good approximation of the number of iPhones it sold this weekend by the time the market opens up on Monday morning. That’s been the tradition for more than five years at this stage, and it might be taken as a negative sign were the firm to stop giving out that info with iPhone 6S sales.
The first weekend of iPhone 6S sales falls more or less at the very end of Apple’s September quarter. That means that when the firm unveils its earnings numbers for the three months, the only iPhone 6S sales we’ll see are those from this weekend.
In order to get a good glimpse of how iPhone 6S sales are going, we’re going to have to wait until January. The first long period of sale will be from October to December. If the iPhone 6S doesn’t match up to the last gen of Apple smart phone this holiday season, Wall Street could get rowdy.
The problem with iPhone 6S sales numbers
When Apple puts out the iPhone 6S sales numbers on Monday, there’s going to be two points brought up over and over and over again. The first will be brought up by those banking on doom and gloom for Tim Cook and his team in the year ahead.
They’ll say, quite rightly, that the iPhone 6S was launched in China on day one this time around. They’ll go on to conclude, with greater surety but less proof, that this means the firm should have sold many more units of the iPhone 6S on the first day of sales than it did last year.
The counter is obvious. Those who think Apple is doing well will say that it’s production that constrains the firm rather than problems with demand. On September 12 it was already reported that the iPhone 6S had sold out in China. In order to get a clear picture, we’re going to have to wait a long time. For the time being we have people on Wall Street to listen too.
Tracking Wall Street’s iPhone 6S sales numbers
The iPhone 6S release date is the first time that much of Wall Street is open in declaring an end to the success of the iPhone. The analysts can be roughly broken down into three discrete groups. Here’s a look at what they have to say.
iPhone sales are better than ever. Led by Steven Milunovich of UBS, this group reckons that the features of the iPhone 6S combined with the dawn of installment iPhone programs will boost sales of the device. The better phone and the easier way to pay means a shorter upgrade cycle, in Mr. Milunovich’s view.
He reckons that Apple shares are worth $200 as the firm gets more and more fans to buy a new phone every single year.
iPhone 6S sales alright, but Apple is building. This group thinks that the market for smart phones is getting full, and the market for the iPhone is filling up even as more premium Android users migrate.
They reckon that Apple will sell in or around the same number of iPhone 6S units this year as they sold of the iPhone 6 last year. Some even think there’s going to be some growth in the business. They all agree on one thing, however: in order to keep growing, Apple needs to move beyond the iPhone.
Brian White at Cantor Fitzgerald is chief among these analysts. He reckons that the firm is working to make software and services a key part of growth with Apple TV, Apple Music, and Apple Pay all bringing quality revenue that makes the hardware better at the same time. He thinks Apple’s going to pull that off, and has a $195 price target on the firm’s shares.
Apple is lost. The more bearish sell side research still doesn’t predict Apple is set to fall off the face of the earth any time soon. Abhey Lamba at Mizuho rates the firm at Neutral with a $125 price target. Lamba doesn’t see meaningful revenue growth from any of the products, including the iPhone 6S, that Apple revealed on September 9.
The firm will face tough comparisons with iPhone 6S sales in the months ahead, and will have nothing else to really show for itself in order to focus attention on silver linings. This group reckons that Apple hasn’t really shown off anything that can save itself, and they’re waiting to see how the firm plans to make growth a reality in 2016.
How can we value Apple?
Apple is a mystery to Wall Street. On Friday morning, as iPhone 6S sales begin around the world, the firm is trading at just over 13 times last year’s earnings. That’s a level that, given the current S&P 500 valuation of more than 19 times earnings, prices in very little growth.
At the same time Apple has a huge amount of cash on hand. The firm is sitting on close to $200B in raw cash, and has about $50B in debt to subtract from it. The firm’s value is, in the eyes of many esteemed market commentators, way below where it should be even if the iPhone 6S brings no growth whatsoever.
As you can see above, many of those speaking about Apple for sell side research firms still think the firm is a Buy heading into the big reveal of iPhone 6S sales. Guessing those numbers is hard, and putting a value on Apple shares is even harder.
For most traders now might be a good time to give up on guessing Apple price movements. For the iPhone 6S it might be better to pick a side rather than trying to predict from scattered new stories what Tim Cook might proclaim on Monday.