In this segment from an episode of Motley Fool Answers, Robert Brokamp and Alison Southwick are joined by Matt Argersinger of Million Dollar Portfolio and Supernova to reflect on Apple (NASDAQ: AAPL). The stock moves over the longer term have got to be making shareholders smile, but its fans may also feel like they've been waiting awhile for a real "wow" moment.
However, the company keeps steaming ahead, making incremental improvements, growing its services business, and generally minting cash even when its latest iPhone models haven't been quite as hot sellers as most analysts had predicted. The Fools talk about the risks it faces ahead and its advantages.
Alison Southwick: Obviously, I'm not going in order of the acronym, but now we're going to move on to Apple. From what I can tell, Apple has just continued to chug along. I remember when I first came to The Fool, Apple was all you could talk about. Every headline on Fool.com had Apple in it. Anything Apple did everyone was talking about all the time and it was hyper scrutiny. But I feel like that's died down a bit in the last year. Am I wrong?
Matt Argersinger: No, I think you're right. I think Apple, by all accounts from a business perspective, is doing much better than I ever thought they would do at this point. In other words, a few years ago when Apple hit its apex in terms of mindshare investing and hit that huge market cap, it was like how much bigger can it get?
Eventually, with competing phones, how can they still be charging these high prices for these iPhones that they have? And guess what? They have been able to do that, which has been remarkable. If you look at the average selling price of the iPhone, it hasn't really budged. In fact, it's gone a little bit higher in recent years. They're still commanding a ton of pricing power.
At the same time, the services side of the business is better than it's ever been. Apple Music has become a major force against Spotify, people are engaging with Apple Services, and Apple has this incredible business where they take 20-30% of the revenue from these apps -- from the apps that people make that end up in iTunes -- and that's an incredible business. That monopoly, so to speak, has yet to be challenged.
By the way, it's hard to draw direct links with what we've talked about with Facebook and Google. We've got to remember that Apple controlling the phone also has a tremendous amount of data on you. What apps do you use? How do you use them? How do you use your phone? What do you do online and offline? It's stuff that they were criticizing Mark Zuckerberg on Facebook about, but Apple probably has much more data around that.
Now, Tim Cook has been really upfront in saying that user privacy and data security is paramount to us, and we don't engage in licensing or selling of user data. We would never do that. But at the same time, they have the extraordinary responsibility of just the hundreds of millions of people around the world who own and use iPhones, and Apple knows all of that.
So, it's a responsibility that they've borne very well and the business, like you said, is just chugging along.
Southwick: I think people believe that when Steve Jobs died the innovations leveled off at Apple. It doesn't look like that when you look at the stock price, but it feels like it's been a while since we've had a big step forward from Apple.
Argersinger: Right. The Apple Watch has sort of gotten better.
Southwick: Let's call up Apple's ad team. We've got a new slogan for you. "It's gotten better."
Argersinger: There have been innovations. Apple Pay is a major point of sale, now, which is very powerful for them. In terms of the "must have," you'd think at this point with augmented reality or TVs and things like that, there would have been some bigger breakthroughs. There really hasn't been. And if anything, the risk has gotten a little bit bigger because they're more dependent on the iPhone today in terms of their sales and profits than they've ever been as a company. You can say that's a great thing because the iPhone is a great phone. It's still popular. As we talked about, they've been able to maintain the pricing power.
But you worry as an investor that down the road the phone becomes just a commodity, and it doesn't matter if I have a Google Pixel phone.
Southwick: Yes, an Android-based device.
Argersinger: Or an Android-based device. Or a Samsung. It isn't going to matter so much. It's more about the software. Apple is emphasizing that, but still, that iPhone is so influential on the business.
Southwick: It must be, because it feels like Apple keeps having these "it's better than it was before" products and not really coming out with anything awesome, but yet you wouldn't know that by looking at the stock price, because it's just been going up and up.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Alison Southwick has no position in any of the stocks mentioned. Matthew Argersinger owns shares of Alphabet (C shares) and Apple. Robert Brokamp, CFP owns shares of Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
