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Apple reveals new Apple Watch, iPad, subscription services

Apple reveals new Apple Watch, iPad, subscription services

Apple revealed new tech products and subscription services September 15 at its virtual live event. The tech giant announced a new Apple Watch, iPad Air and Apple Pencil in addition to subscriptions services Apple One and Apple Fitness+. However, Apple did not reveal any news regarding the iPhone 12. CFRA analyst Angelo Zino joins The Final Round panel to break down the details.

Video Transcript

SEANA SMITH: Welcome back to “The Final Round” here on Yahoo Finance. Apple hosting its highly anticipated virtual event this afternoon. The big reveal, we got two new watches, two new iPads, a fitness service, as well as a service bundle. So here to talk a little bit more about this, we have Angela Zino. He’s an analyst at CFRA. And Angelo, we got your note this morning ahead of the event. You were expecting new iPads, a new watch. You were hoping for a bundled plan. That is exactly what we got. So let’s just first start with that bundle plan. It’s called Apple 1. It’s tiered pricing model. How big of a catalyst do you think this could be for Apple down the road?

ANGELO ZINO: Yeah, I mean, to your point, I mean, for the most part, the event was largely as we expected. We were hoping for the color on the services side of things. We definitely got that in terms of the bundling options out there. We think over time, has the potential to be an enormous catalyst here. Our view was, we were looking for about 15% growth on the services side of things going into 2022, 2021, that is. With this bundling package, we think you could see an acceleration of growth on the services side of things, and also kind of boost some potential consensus estimates on the services side of things. So from that perspective, definitely a good thing.

I’d also comment on the fitness, the fitness app that they announced for $9.99 a month, or at least starting at $9.99 a month. That was something that we didn’t necessarily anticipate. The fact that we got that also I think is also a nice little plus in terms of the capabilities on the services side of things.

AKIKO FUJITA: The bundle service itself, what does that say about the ambitions of Apple, particularly in something like a content or a fitness? Is it really just about building out an ecosystem so they give the consumer is a reason to stay? Or are they really looking to compete with some of the bigger names in this space?

ANGELO ZINO: So our view long term in terms of Apple and their ambitions on the services side of things is, essentially, we believe that they’re looking to essentially evolve themselves into more of an Amazon Prime type of offering. So longer term, imagine kind of something along those lines in terms of Apple. And we think this is really kind of the first stages to getting to that point.

I mean, you kind of look at the three-prong pricing strategy that they have there. Just expect more and more services to kind of be packed in this stuff, especially on the premium side of things, which is being priced at $29.95 a month. So over time, our view is kind of think of Apple as more of kind of the Amazon Prime type of offering out there.

And as we kind of get closer to that ambition, and as we kind of see the opportunities being unlocked over the next decade there, think about where the potential is in terms of Apple stock and the multiple there. Because a lot of people out there kind of on the opposite side of the Apple call here that aren’t as bullish, kind of point to that overvaluation. And we continue to tell investors listen, as you continue to see that gravitation to more and more services, specifically on these bundling opportunities, I think that valuation today makes a lot more sense.

INES FERRE: Angelo, in going on from that point of the fitness plus, what about when it competes with a company, for example, like Peloton, which Peloton has hardware and also it has the classes. Do you think, do you see Apple ever getting into the hardware, more hardware for the fitness at home space?

ANGELO ZINO: I think it’s a possibility. I think there’s a lot of potential out there, especially in the AR side of things, as you kind of start seeing Apple kind of roll out stuff in terms of AR glasses and what have you. There is definitely the potential for them to get a lot more invested on the fitness side of things now. If you kind of look at just the announcement today, I think that’s got to be Peloton’s worst nightmare, because you are essentially able to essentially turn any type of old bike into a Peloton type of bike out there.

So from that perspective, this is definitely a huge negative we think for Peloton. But the longer term, to your point, I think there’s a lot more they can do on the fitness side of things. I don’t know if it’s necessarily hardware-related. AR glasses, I guess you view as more wearables-oriented and potentially hardware-related. But nothing along the lines of let’s say, a bike, at least in our view.

AKIKO FUJITA: Angelo, you were just talking about the valuation and the question about whether it is overvalued. Certainly, you don’t think so as well. I’m just curious why you think Apple stock didn’t rally more on the back of this news. A lot of this was expected, yes, with the Apple Watch and the iPad, but the bundle services certainly anticipated, but we didn’t know all the specifics. And then the fitness side seemed to be a real surprise as well. What do you make of the reaction in the market?

ANGELO ZINO: Definitely not surprised about the reaction. I mean, if you were to ask me today what would happen to the stock price, I thought the company would essentially run into the event, and then you’d essentially see a selloff thereafter. And if you kind of look at how Apple stock has reacted in years past to a lot of these type of events, kind of seen that run into the actual event, and then a selloff thereafter. And whether or not this takes a couple of days or not to kind of flow through, who knows.

We do believe that to some extent, I mean, you’ve definitely seen an overheating in Apple stock price. In recent weeks, you’ve seen some consolidation there. We do think this is more type of a situation where Apple will grow into that multiple here over the next couple of months and quarters, because we do see upside to the consensus estimates here.

So that being said, we’re not concerned at all by the valuation or how the stock reacted here. And don’t forget, the 5G phones will be announced and rolled out we think sometime in October. And we do think that’s kind of the bigger announcement that investors are probably waiting to hear. Maybe some out there were waiting to hear something along those lines here today, and maybe were disappointed by not hearing that.

SEANA SMITH: Angelo, how bullish are you on Apple’s new iPhone cycle, just in terms of the demand that you think we’ll likely see? Because I think that’s been a big question mark out there amongst investors over the last several months with this lead up to the 5G just in terms of how well that’s going to resonate with consumers.

ANGELO ZINO: Yeah, absolutely. So when we think about the actual 5G cycle, we’re actually not as bullish as maybe some others are concerned in terms of the next 12 months. So our view is, this is going to be more of a, this is going to be more of a cycle where it’s going to help stop some of the bleeding we’ve seen in recent years. If you actually look at the smart phone industry over the last four years, this’ll be the fourth consecutive year of declines for the smartphone industry. Apple hasn’t kind of been immune to some of those challenges. We kind of go into 2021 here, we think some of those, the extension of the replacement cycles will start to stop and we’ll actually see some improvement in 2021.

But that being said, we’re not looking for any sort of monster double digit growth in terms of iPhone unit growth. We’re looking at mid to high single digit growth in terms of iPhone unit volume, as well as some benefits on the actual average selling price front. Because as we all know, you can’t buy a 5G Apple device today outside of actually buying it via through them. So that’ll definitely help the average sell [AUDIO OUT] price as we think into 2021.

As a result, we do think you can kind of get somewhere along the lines of 15% plus growth in terms of their iPhone business. And that would be a huge positive and probably, at that point, would definitely be the best number we’ve seen in terms of the Apples, the iPhone side of things since that iPhone 6 cycle. So there’s a lot to be excited about it. But at the same time, we’re not looking for any type of 20% plus unit growth in terms of iPhones. But that being said, I’d also say this. We’re talking about two years of fairly unimpressive growth here in terms of iPhone units. And that being said, I think the comps get very easy.

SEANA SMITH: All right, Angel Zino, great to have you back on the show, with CFRA. We’ll see you soon.

ANGELO ZINO: All right, thanks a lot.

About the author

Erin Clark

Erin Clark

Erin is a sports enthusiast who loves indulging in occasional football matches. She is a passionate journalist who flaunts a perfect hold over the English language. She currently caters her skills for the sports and health section of Report Door.

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