Email of the day on Apple's ability to outperform
Comment of the Day

September 26 2022

Commentary by Eoin Treacy

Email of the day on Apple's ability to outperform

Many thanks for the latest weekly video, which sets out the bearish case for investment at the moment. In today's FT there is an article about Apple's latest iPhone. The author claims that sales projections for the latest Pro version of the iPhone suggest that the company will earn record -breaking revenues from its sales , which account for 50% of its business. In addition, it suggests that there might be a future monthly package that combines the iPhone, Apple Music and iCloud. Could Apple stand out against the overall bear market?

Eoin Treacy's view

Thank you for this topical question which may also be of interest to other subscribers. Just ask yourself how often you change your phone? For me at least, it is when the battery starts losing charging capacity. That’s usually every 3 years.

The new iPhone 14 costs $999 and the Pro version costs $1099. If amortised over 2 years, it works out at around $45 a month which can be lowered further if you have an old phone to trade in. So, for many people it will be a question of whether the new phone has sufficiently enhanced features to justify the added monthly expense.

I thought this article from Austin Carr for Bloomberg was very instructive in how the iPhone is the entry point to additional spending. Phones now have highly specialised cameras that take photos in profound detail that quickly eat up storage space. iCloud is an added expense and in my experience is difficult to navigate with the result that most of what is on my cloud is dross.

The wider issue is the tech sector is dependent on two themes that have proliferated over the last decade. The first is the subscription business model. For software companies, this has streamlined cashflows and ties consumers to their brand. In isolation this is a positive outcome. However, now almost every company is adopting a subscription model. The result is we have monthly cashflows for mortgages, cars, phones, utilities, cloud services, streaming services like Netflix, Microsoft 365, antivirus software, games, food, Uber, deliveries etc. The consumer is being reduced to a cashflow generator and any sense of personal agency is being eroded.

The second is the advertising business model. Google led the charge by disrupting print media. Now, every social media platform, Amazon, grocery websites, Apple and electric car chargers are selling advertising space. I guess the message here is a good thing taken too far isn’t a good thing any longer.

I’d be amazed if Apple comes through the impending recession unscathed.

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