Apple Stock: Has The 'magical' Elixir Of Innovation Run Out?

  • It has been a while since Apple has launched a product which has truly gotten most people excited.
  • The gap between Apple and its competitors in terms of innovation is beginning to close.
  • Apple looks towards services and software to maintain dominance.

With a market cap of $626.33bn (as of Nov 16 close), Apple (NASDAQ:AAPL) is the world's biggest company. However, due to competitors releasing products which match theirs in all-areas, the competition is catching up, and Apple is beginning to feel the heat. A result has been the under-performance of Apple stock vis-a-vis the Nasdaq composite index.

AAPL stock chart

Source: Apple stock price data by amigobulls.com

It has been a while since they have given the world a product with the euphoria of the Macbook Air or first iPhone. This might be due to the fact that it is getting more challenging to break the barrier of innovation. On the other hand, perhaps Apple is more willing to 'drip feed' big features.

Nonetheless, Apple needs to make sure that their next product releases set the tech world alight. Below we will be delving into the reasons why.

Increased competition

When the first iPhone launched the world stood still because we had never seen anything quite like it. In fact, it became the most desirable phone on the planet seemingly overnight. The same can be said for Apple's release of the first Macbook air.

Additionally, the late Steve Jobs pulling a thin laptop out of a manila envelope was a scene repeated on tv screens around the globe and was an encapsulation of what it means to innovate.

Fast-forward to the present day and it seems as if every major tech company is releasing phones similar to their competition. Therefore, in the battle for consumers cash, it is marketing that is really making the difference. Moreover, when we consider that older smartphones can still do much of what current ones are capable of, some people are happy to hold onto their 'old' smartphone.

Samsung Electronics (OTC:SSNLF) - Apple's biggest competitor - launched a Galaxy S6 range to much global acclaim. This has done much to give Samsung a market share of 23%. In comparison, Apple's stands at 17% of smartphone market share.

As is stands, Microsoft (NASDAQ:MSFT) Windows phone market share stands at 3% in the U.S. Therefore, it isn't a big threat to Apple's business; however, Windows phone 10 will have Continuum- a feature which allows windows phone devices to connect to a monitor and provide a desktop-like experience. Moreover, Windows phone devices are significantly cheaper than the iPhone 6s. Therefore, they could be a threat in the near future.

At present, the iPad's sales are declining, and Apple hopes that the launch of the iPad Pro will boost revenue. However, with a price point that rivals high-performance laptops and the arguably more productive Surface Pro 4, the iPad Pro might struggle. Moreover, it is causing people to take another look at rival devices in order to compare.

However, it is worth noting that the iPad Pro is aimed squarely at the enterprise market- which isn't a bad thing. On the other hand, it runs on a mobile OS which might make it a hard sell.

Software Opportunities Lie Ahead Of Apple

Due to the increased difficulty of making significant changes on the hardware front, Apple is looking to software and services in order to take huge leaps forward. For instance, Apple recently announced Apple Music, and has plans to go toe-to-toe with Paypal's Venmo in the peer-to-peer payments niche.

Apple's ability to implement and integrate these offerings seamlessly into its product line could have a huge impact on the bottomline of the company.

Conclusion

In conclusion, despite the fact that revenue growth is looking incredibly healthy at 29.1% over the last 5 years (compounded annually), investors are still worried about Apple's ability to innovate. Interestingly, Apple have increased their R&D budget by $1 billion which raises the question of whether they are saving something spectacular for the coming year. To be honest, the iPhone 6S wasn't a huge jump from the iPhone 6.

Apple's CEO recently indicated that Apple is looking at getting involved in the lucrative health niche. Considering the brand power that Apple carries and the high profit margins possible in the health industry, this could be a great move.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

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Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

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