Apple Investors Ought to Look to 2020 for Answers

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Apple (NASDAQ:AAPL) reports its fourth-quarter 2019 earnings on Oct. 30 after the markets close. If you own Apple stock, they’re not expected to be anything to write home about.

For deciphering the future of AAPL stock, don't look in the mirror for Q4 stats.

Source: View Apart / Shutterstock.com

Not to worry.

What’s happened in the fourth quarter has almost no bearing on the Apple stock price. What matters to AAPL stock is what’s to come in 2020. Here’s why:

Future iPhone Sales

The fourth quarter will include a week’s worth of sales from the iPhone 11, which were available for purchase on Sep. 20. The big number comes in Q1 2020, which ends in December, incorporating holiday sales into the latest version of Apple’s smartphone.

That said, Apple investors know the big bump in Apple stock will come when 5G phones enter the marketplace. Optimistic speculations say they’ll drop late in the calendar 2020. Other less optimistic dates include 2021, perhaps as late as 2022 if you’re looking for an iPhone with an Apple 5G modem.

TF International Securities analyst Ming-Chi Kuo expects Apple to ship as many as 75 million iPhones in 2020 due to the launch of a 5G-enabled phone. That’s up from his 2019 estimate of 65 million to 70 million iPhones.

If Morgan Stanley analyst Katy Huberty is correct, and a 5G phone launches in September 2020, now is the time to be buying AAPL stock.

“Ultimately investors appear to be owning the stock for the coming 5G iPhone cycle and ramping new services so even in the scenario of light December-quarter guidance, we expect inflows to the name in early 2020 as Apple’s multiple typically expands in the nine to 12 months ahead of major product cycles,” Huberty wrote in a recent note to clients.

So, what Tim Cook says in both Apple’s earnings release and conference call should have little effect on Apple’s share price given investors are betting on a late 2020 launch of a 5G iPhone.

The Other Goodies

What investors would like to hear from Cook is more detailed information about Apple TV+ and its cost to the company in the short term.

Because the company is offering a year’s free subscription to the streaming service for anyone buying Apple hardware (iPhone, iPad, Mac, or Apple TV), it will have to defer approximately $57 per iPhone sold to account for the one-year offer. Also, its services segment could amortize the cost of content over three years, but the actual accounting treatment of its new service has yet to be explained in full detail by the company.

I’ll be looking for more details in the conference call about the financial side of the Apple TV+ launch on Nov. 1.

However, Apple TV+ could become a significant revenue generator for Apple’s services segment.

“With an attractive price point at $4.99/month, and wide initial distribution to the Apple installed base via the bundled free year offer, we estimate Apple TV+ can become a $9B revenue business with 136M paid subscribers by FY25, assuming just 1 in every 10 Apple user pays for the Service by FY25,” Huberty stated.

The Bottom Line on Apple Stock

Between a services business that’s expected to grow by as much as 20% in 2020, to the possible 5G iPhone launch in September of next year, combined with an 8% dividend and buyback yield, the likelihood of Apple’s multiple expanding in the next 12 months is high according to many of the bullish analysts who cover its stock.

I’ve been a fan of Apple for some time.

Now that it climbs toward $300 a share, I believe that investors would be wise to buy AAPL stock regardless of its latest earnings results.

2020 will provide all the answers.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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