- The latest iPhone models from Apple Inc. went on sale recently.
- The pre-orders have been strong even though the initial response to the launch was lukewarm.
- What exactly is driving the huge sales and can this new-found momentum last for Apple stock?
Apple Inc. (NSDQ:AAPL) put the iPhone 7 on sale recently. With reports of pre-orders coming in far above expectations, the iPhone 7 has been a pleasant surprise, after the investment community had been skeptical of Cupertino's latest flagship model. With the iPhone segment contributing over 56% of Apple's overall revenue in the latest quarter, it's no surprise that investors are curious about the performance of the latest flagship.
The iPhone 7 models have been outselling their predecessors by a huge margin, with T-Mobile putting the sales at 4X that of iPhone 6 and Sprint putting the pre-orders at 375% YoY growth. With the low expectations following the launch, the strength in the initial sales has been such that Apple stock price has jumped 12.1% this week, catapulting Apple stock to its highest price in 2016.
While that's in the past, an important question to ask is what exactly is driving this rush for Apple's so-called 'boring' iPhone 7? Can the momentum last beyond the initial sales? Let's take a deeper look.
iPhone 6 refresh cycle is kicking in.
The iPhone 6 series was by far the biggest selling iPhone model with the model selling over 100M units. So, why does it matter now? The 2-year refresh cycle has always been a powerful driver for iPhone sales and the 100M users wanting to upgrade could be a huge potential driver for iPhone 7 sales. More likely than not, the thundering sales of the iPhone7 should continue beyond the initial weekend.
Carriers are going aggressive with free trade-ins.
Apple, in a large part, also has the major telecom carriers to thank for the success of its latest models. With all the major US carriers offering free trade-ins with a 2-year lock-in cycle, you can effectively get the latest iPhones without paying anything. It would be hard to find a sweeter deal.
While the carriers are battling for subscribers switching from competitors, the biggest beneficiary of this dogfight will be Apple itself. Combine the free trade-ins with the natural upgrade cycle and the iPhone 7 could probably have explosive growth ahead of it. Speaking of 'explosive' brings us to the next point.
Samsung couldn't have timed their 'pocket bomb' better.
Samsung has been on the wrong side of the news headlines over the last few days. With reports of battery explosions in their latest flagship devices, Samsung's Galaxy Note 7 is nothing short of a pocket bomb. Call it luck or what you want, the timing just suits Apple. The market is an unforgiving place. With Samsung botching up its Note 7 recall, the crisis will only take longer to resolve. To add to the mess, there have now been reports of battery issues with the Galaxy S7 as well, which could only hurt 'brand Samsung' even further. What does this mean for Apple? An acceleration in users shifting loyalties from the Samsung camp.
To put things in perspective, Samsung Galaxy S7 and S7 edge sold an estimated 25.1M units through the first half of 2016 (3 months and 20 days as it was launched on March 11). In the Note series, the last global launch, the Note 4 moved 4.5M units within a month. Given that Samsung and Apple have pretty much been the top players in the 'Premium smartphone' space, the potential bump to iPhone 7 sales could be significant.
While not many reviews appreciated the new functionalities, iPhone customers have historically proved receptive to meaningful functional changes. Simple things like increases in screen size proved to be tailwinds for models like the iPhone 5 and iPhone 6 series, making them bestsellers in Apple's iPhone range. Hence, the added features of the iPhone 7 being waterproof and dustproof with a better performance (processor and battery) and improved camera could be 'good enough' for a lot of people, even though it sounded 'boring' to many experts at the time of launch.
Technical Charts Indicate Apple Stock Could Be Headed Higher
A look at the technical charts proves that now is the right time to buy Apple stock.
Apple stock is trading above all the key moving averages. Investors should also take note of the recent 'golden cross' which is a strong bullish indicator. In addition to these factors, Apple stock has also broken out of a bearish 'descending triangle' which was forming on the daily chart (notice the blue and red line in the chart above) by breaking above the last major peak in the pattern at the $110 level (I am excluding the small peak at the $101 level). All in all, the charts suggests that Apple stock is breaking out in the right direction, on high volumes, which suggests that Now is the time to buy in into this rally.
The iPhone 7 sales are reportedly crashing past estimates. With a number of factors coming together at the right time, the strength in iPhone 7 sales should last longer than the initial period. Combine the fact that the iPhone is generating over 50% of Cupertino's topline and Apple stock could be in for earnings surprises in the coming quarters. With Apple stock gaining new-found momentum from the iPhone 7 sales and the technical charts supportive of an entry into the stock, now could be the perfect time to buy into Apple stock ahead of the coming rally.