Apple (AAPL) is slowly recovering from a bad December earnings report when the company released Q4 revenue numbers significantly lower than it had guided for. Wedbush analyst, Daniel Ives suggests the cause for the dip was majorly impacted by iPhone XR pricing. While maintaining a bullish Outperform rating for the company with a price target of $200, the analyst still has two suggestions for Apple: 1.) Cut prices in China on the XR model and 2.) acquire other companies in order to drive services over the coming years. (To watch Ives’s track record, click here)
“While some investors will fret around price cuts and what it means for top-line growth in the next few quarters and losing perception as a luxury smartphone, taking a step back it’s all about the installed base for Apple. In our opinion Apple is facing a “code red” situation in China and the right pricing strategy around XR and future versions will be key to putting a ring fence around the core installed base in the region. With lower priced competition from all directions with Huawei and Xiaomi front and center, Apple needs to make sure that over the next few quarters they do not lose any current iPhone customers and thus speaks to the more significant price reductions on the way,” the analyst explains his first position.
Ives suggests that services are the “linchpin of the Apple story” and that Cupertino needs to consider adding more. Though Ives does not believe a standalone subscription video content service is on the horizon in the next year, he notes many other big players are already dipping their toes in expanding video content. Netflix, Amazon, Disney and Hulu are already making deals to expand and share services.
“While acquisitions have not been in Apple’s core DNA, the clock has struck midnight for Cupertino in our opinion and building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A around content over the coming year to “double down” and drive the services flywheel,” Ives explains.
Analysts are split when it comes to Apple stock. TipRanks data shows out of 36 analysts, 18 are bullish and 18 are sidelined. The consensus price target of $178.57 shows a potential 19% upside from where the stock currently stands. (See AAPL’s price targets and analyst ratings on TipRanks)