I'm an Apple customer and shareholder. I watched parts of the live-stream of the launch yesterday — when it wasn't crapping out. I looked at pictures and videos of the new products. I read some early "takes" on the products.
So it's time to rush to judgment.
And here's my judgment — as a customer first, and then as a shareholder.
My judgment as an Apple customer...
THE iPHONE 6: Yay!
Apple has finally caught up with the rest of the market and launched a smartphone that isn't tiny. I've been a loyal iPhone user for 5 years, and I've been waiting for this particular upgrade for the past two. The faster processor, better battery, and better camera are also appealing to me. Great job, Apple.
THE iPHONE 6 PLUS: Yay!!
Bigger is better, and Apple has not only finally launched an iPhone that isn't tiny, it has launched an iPhone that is actually big. No more squinting. No more listening to movies because I can barely see them. No more watching sports without being able to see the ball. The iPhone 6 Plus has a bigger battery, too. The only thing that might deter me from getting the Plus is the weight — it might seem heavy. Everything else sounds great. Awesome job, Apple.
APPLE PAY: Cool!
Apple's vision is to make my wallet irrelevant. I would consider it awesome if Apple managed to do that. Apple has a long, long way to go in executing that vision, but Apple Pay is a strong step in the right direction. I find credit cards extremely convenient, however, so I'm not yet sold on the idea that Apple Pay is going to be that much more convenient than my wallet. But it looks a lot more convenient and cooler than any other "wallet" solutions out there to date. Now that Apple has adopted the NFC (Near Field Communication) standard, mobile payments may finally begin to gain critical mass.
APPLE WATCH: Meh.
Yes, I know. Apple fanboys are hyperventilating about the Watch. Yes, Apple has done the Watch better than other earlier smartwatches. Yes, Apple fanboys will line up for days to buy the Watch and then, once they get it, collapse in paroxysms of pride and ecstasy. I don't care. I have zero interest in the watch. I've been waiting for years to have a bigger mobile screen, and I don't consider it even the slightest inconvenience to carry it around with me. The last thing I want to do is also carry a tiny screen, especially one that won't work without my iPhone. I don't want to carry another charge cord everywhere. I don't see anything the Watch can do that my iPhone can't do better (except, perhaps, some biometrics, which I don't care enough about to shell out another $349, put something on my wrist, and carry around another charge cord for). I realize that the Watch looks better than some other smartwatches, but it's still chunky and blocky. $349 is a lot of money for something I don't need or want. So the fanboys will be having their religious experiences without me.
My judgement as an Apple shareholder...
I rarely trade stocks — I think it's an idiotic investment strategy for individual investors — but sometimes I can't help myself. Last year, when everyone decided that Apple was toast, and the stock crashed below $400 (~$50-ish in today's split), I couldn't help myself. Apple was still a great company, the stock looked very cheap (less than 10X earnings), and lots of cool products were coming. So I figured it was worth a shot.
I already owned a ton of Apple stock, thanks to my index funds, but this purchase gave me an modest "overweight" position in Apple. I have maintained this "overweight" position for the past 18 months. But now everyone once again seems convinced that Apple's stock is going to the moon, and that scares me. I intend to go back to an "equal weight" position at some point. But, as of this writing, I haven't.
I probably should have dumped my excess Apple yesterday, when the stock jumped to $103 in the seconds before the Watch was announced (it then plummeted). I think there's a decent chance that that will be the high for a while.
The reason I hesitated is that Apple stock is still only trading at 16X earnings. And the company is poised for what I think will be a monstrous and monstrously profitable upgrade cycle with the iPhone 6.
Make no mistake:
The only Apple product that matters in terms of Apple's financial performance over the next year is the iPhone.
The Watch is irrelevant.
I expect Apple to continue to evolve and upgrade the Watch, and I expect it to become better (and better looking) over time. I expect that, someday, Apple will make the Watch autonomous, which will make it appeal to those who actually do mind carrying a smartphone around. I expect that the battery life will improve. I expect that some apps might come along that will finally enable the Watch to do something that is fundamentally different than what an iPhone does. But I do not expect that to happen over the next year.
Apple is a huge company. It has nearly $200 billion of revenue. Even if Apple sold 10-20 million Watches next year, which would be a massive home run, this would add less than 5% revenue growth (assuming an average sales price of $400). Anyone who is expecting the watch to turbocharge Apple's financial results next year is hallucinating.
But the iPhone 6 is a different story.
Every iPhone out there in the world is relatively tiny, and more than half are more than 2 years old. I think almost every iPhone owner in the world will want the bigger iPhone, and over the next two years, I expect the vast majority of them to upgrade.
Furthermore, I expect many iPhone owners will want the bigger big iPhone. And that one will add an extra $100 to Apple's revenue (and a healthy dollop of that to profit) for every unit sold.
So I think next year could be an excellent year for Apple, even if the Watch turns out to be a bomb.
If next year were the only year that mattered, I wouldn't even consider selling my excess Apple stock — I would hold it until the stock price multiple expanded or the price got out of hand.
Alas, next year isn't the only year that matters.
The years after next year also matter.
And that's where I have misgivings being overweight Apple stock.
Why?
Because I think the iPhone 6 upgrade will be the last huge upgrade cycle for the iPhone.
Now that Apple finally has a big phone, it has a full range of screen sizes. Yes, future phones will get a bit faster. Yes, future phones will get a bit better. But I don't think most iPhone users will care about those incremental improvements enough to rush to upgrade. I think they'll save their money and keep using their already big, excellent iPhones until they break.
After this big upgrade cycle runs its course, in other words, I think annual iPhone sales will shrink, especially if Apple persists in charging $800 for its phones while the average price of smartphones plummets worldwide. And I don't think any other product will ever be nearly as profitable for Apple as the iPhone (which accounts for an estimated 70% of Apple's profits).
Yes, it's possible that the watch, or a TV, or Apple Pay, or some other new Apple product will be a mega-hit and drive strong future profit growth. As a shareholder, I certainly hope so. But I'm not counting on it.
So that's my current judgement as an Apple shareholder. I'm still hanging on, for now. But I'm not feeling all that great about it.
