“Apple posted extraordinary results last quarter,” Adam Levine-Weinberg writes for The Motley Fool. “iPhone unit sales surged 46% year over year and iPhone revenue grew at an even faster 57% rate.”
“However, iPhone sales growth is virtually certain to slow to a crawl by 2016,” Levine-Weinberg writes. “Luckily, this doesn’t mean that Apple stock is doomed. Beginning later this year, sales growth in Apple’s other product lines (including new products like the Apple Watch and Apple Pay) will start to offset slowing iPhone growth. As Apple starts to diversify its earnings away from the iPhone, its valuation should rise.”
“In the first year of sales, the Apple Watch could bring in $10 billion of revenue even if only 5% of iPhone users buy one. That’s significant even by Apple’s standards,” Levine-Weinberg writes. “Apple Pay will take longer to mature. Apple gets 0.15% of the purchase price for Apple Pay transactions, so it would need to support $1 trillion in purchases to generate $1.5 billion in revenue. But global credit card/debit card payment volume is already well beyond $10 trillion annually and growing strongly. Apple Pay could conceivably process trillions of dollars of purchases a year a decade from now.”
Read more in the full article here.
I doubt it will take 10 years for Apple Pay to generate over a billion in revenue (which is almost 100% profit for Apple). I predict 2-4 years, with a point estimate of 3 years.
I wouldn’t want to hold my breath until iPhone sales “slow to a crawl.”
Sounds like another wishful analyst in Samsung clothing.
There are, what, 300 million iPhone users who still haven’t upgraded to an iPhone 6? Might take a bit of time but there’s a lot of potential there.
To be more precise, it will produce in excess of $1 billion by fiscal 2018.
Slow – maybe
Crawl – doubtful
iPhone is only one product. Apple Watch is talked about, but you can be miniaturization will result in devices that go on the temples of glasses and in/on the ear like a hearing aid.
Then at some point Apple could buy Xiaomi to sell to the less developed countries of the world. If Apple did that, it would buy with pre-US-tax dollars. Sounds good to me.
What nonsense … Apple Pay will actually DRIVE sales of iPhone 6 devices, so don’t know where the slowdown comes from!
I have to agree. I wonder if these guys are on a free association ramble, because it sure doesn’t look like they compare their various premises for consistency.
Levine-Weinberg is a fool to think iphone sales will slow to a crawl. What other smartphone company can produce quality products?
Several comments here have misquoted the article. He’s not talking about iPhone sales slowing to a crawl, he’s talking about iPhone sales growth slowing to a crawl.
I think he may be off by a year. Next year we should see the 2nd cycle of buyers coming over to the larger iPhones, but after that, 2017, it’s not unreasonable to expect a slowdown in sales growth.
Here’s some data to put things in context:
70% iPhone sales growth in 2012
20% iPhone sales growth in 2013
13% iPhone sales growth in 2014
Last quarter we saw 46% sales growth for the iPhone, due mostly to the larger sized iPhones and growth in China.
At some point we’re going to reach market saturation, globally, including China. That may happen fairly soon as China’s economy is headed south and the drop in oil prices will hurt other markets for the iPhone.
Further, while it’s possible that Apple may make some radical changes to the iPhone, if you go back, you’ll see that the most radical thing they did, which did significantly boost sales growth, was to increase the size with the iPhone 6 and 6+. When trying to figure out what Apple’s sales growth rate will be, there always has to be that caveat that something may drastically change (for better or worse), but since there’s no way to predict any radical change in a future iPhone, all one can do is point to past performance, current sales trends, market conditions, and market saturation to figure out what the sales growth is likely to be.
Again, this is growth we’re talking about and not a drop in sales.
Really, it would be silly to think Apple’s sales growth would continue to stay at 46% forever. The world isn’t growing like that.
although I’m not refuting your maths (or your conclusion that it’s hard to keep up growth rates) , I would also like to point out:
if you had 1 million in sales, 50% growth = half a million extra
if you had 1000 million in sales, 10% growth = 100 million extra
Apple’s revenue last quarter was 74,000 million.
—–
what is interesting is that the huge amount of cash Apple generates Apple uses some of it to cement it’s hold by building up its eco system: it’s harder to drop out of using iPhones than other phones.
For example it bought companies to help it build the fingerprint sensor, 64 chip etc which led it to Apple Pay.
With tiny profits it’s very hard for rivals to follow suit.
Cook said Apple recently bought 17 more companies.
And iPhones are merged into the eco system of Macs , iPads etc. , iTunes etc.
so Apple’s low P.E today due to analysts fear that it can quickly fade as it’s supposed to be a ‘one product’ company depending on a hit refresh every year is not exactly true. People aren’t going to wake up one morning and so easily abandoned their iPhones, so the upgrade cycle profits are quite safe.
It also pours those profits into new products like Apple Watch.
Besides that current smaller segments of Apple are actually more profitable than entire companies of its rivals. The Mac division makes more money (profit) than Dell. It actually makes as much profit as all the PCs of the big manufacturers combined.
If Apple was evaluated as several different companies i.e each division was a different company Apple’s valuation should be way higher than 700 billion now.
Again I’m not refuting your post , I’m just pointing out to nervous investors that Apple is safer than some Analysts fear from slowing growth rates.
Yep, I totally agree with everything you wrote.