Should You Buy Apple Inc Stock Following Strong IPhone 7 Sales?

  • T-Mobile CEO recently stated that the demand for the new iPhone 7 has been phenomenal.
  • The claim was also supported by data from Sprint Corporation.
  • Has Apple Inc. hit the ball out of the park with the latest launches?

Apple (NSDQ:AAPL) recently launched the latest models of its flagship smartphone, the iPhone 7 and iPhone 7 Plus. With Cupertino deciding to do away with the tradition of declaring the first weekend sales, It's now up to analysts to figure out from third party sources. With the information on the sales performance of the new iPhones being scarce, T-Mobile CEO John Legere offered some inputs during a recent Q&A session on Periscope.

Also read: Apple Inc Stock Charts Reveal A Major Buy Signal

iPhone 7 is Outselling The iPhone 6 And 6S

iPhone 7 will start shipping on the 16th of September and hence, the eyes of the investing community has been focussed on the pre-orders. With Apple doing way with its tradition of announcing first weekend sales, Apple stock price was hit as investors interpreted the lack of the data point as a sign of weakness in the demand. Apple stock price fell by over 4.5% in the trading sessions following the launch (up to Sep 11). However, it would be worthwhile to take a look at Apple Inc.'s reasoning for the decision. Quoting Apple spokeswoman Kristin Huguet (as per Reuters):

"As we have expanded our distribution through carriers and resellers to hundreds of thousands of locations around the world, we are now at a point where we know before taking the first customer pre-order that we will sell out of iPhone 7,” Apple spokeswoman Kristin Huguet said. "These initial sales will be governed by supply, not demand, and we have decided that it is no longer a representative metric for our investors and customers."

In short, Apple decided to hold back the weekend sales numbers because the weekend sales are a function of Apple's supply chain efficiency, rather than the demand. Hence, using it as a representative metric for long-term sales wouldn't make much sense.

Also read: Will iPhone 7 Launch Be A Game Changer For Apple Inc Stock?

Though Apple has been holding back on the weekend sales numbers, reports from Sprint and T-Mobile suggest that customers are lapping up the Apple's latest flagship smartphone. T-Mobile Chief Executive John Legere, in a recent Q&A session on Periscope, called the iPhone 7 pre-orders a 'phenomenon' while also mentioning that the pre-orders at T-Mobile are 'like 4 times bigger than the iPhone 6'. The CEO also tweeted that the iPhone was doing amazing at T-Mobile:

In a press release, T-Mobile called the iPhone 7 as the biggest pre-order in the telecom's history.

“iPhone 7 is the biggest pre-order in T-Mobile’s history, and that says a lot about our momentum and the excitement customers have for iPhone 7 and iPhone 7 Plus!” said John Legere, T-Mobile president and CEO.

The strong pre-orders data was also re-iterated by Sprint Corp. (NYSE:S) with the carrier stating that the demand is nearly 4X the demand last year (6S).

Pre-orders of iPhone 7 and iPhone 7 Plus at Sprint (NYSE: S) are up more than 375 percent in the first three days over last year.

Since Sprint began accepting pre-orders on Sept. 9, new and existing customers have been placing orders for iPhone 7 and iPhone 7 Plus at a rate nearly four times greater than this time last year.

Putting It All Together

To put things in perspective, Apple Inc. sold over 10M units of the iPhone 6/6 plus in the first weekend. The company bettered its record in 2015, selling over 13M units in the first weekend. If the data from Sprint and T-Mobile is representative of data across carriers, the iPhone 7 will break all past records, and by a fair margin. Assuming that Apple Inc., on aggregate, outsells the iPhone 6S 2:1, it could mean that the company could move more 25M units in the first weekend, which is phenomenal, by any standard.

Also read: 5 Reasons Apple Inc. Stock Will Rise Above $130 A Share

Assuming an ASP of $649 (base price of the iPhone 7), it could mean a whopping $16B in sales. Assuming that the company can only improve to 20M units (on aggregate) in first weekend sales, the sales impact will be $12.98B. Putting this in perspective, Apple reported revenue of $42.4 B in the latest quarter (Q3 2016 ending June 25, 2016), out of which iPhone accounted for $24B. The strong weekend sales of the iPhone could definitely help the Cupertino based company hit the ball out of the park in the next earnings release, which could drive Apple stock higher.

Conclusion

While the investing community was apprehensive of the ability of the iPhone 7 to match the success of the iPhone 6S, the pre-order data from carriers suggests that Apple could have hit a home run with the iPhone 7. The sales could be a significant needle mover in Apple's upcoming earnings releases. This was acknowledged by the market, which awarded Apple stock 2.5% gain since the carriers announced the data.

However, as a word of caution, given that Apple believes the initial sales are more supply driven rather than being a factor of demand, it would be worthwhile to look at how the iPhone 7 sales shape up over a longer time period. Hence, It would be too early to buy the stock based on the first-weekend sales data.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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