After being the center of attention because of his pessimism about Apple shares, even after strong quarterly results, the famous bear Rod Hall in Goldman Sachs threw in a towel and changed his position on the AAPL from selling to neutral. He gave an interview to CNBC last week and further elaborated on his decision (see video below).
Apple Maven is taking a closer look at this bear’s journey, from extremely skeptical to timidly optimistic about Apple shares.
Read more from Apple Maven: Apple Stock: One bear throws a towel
iPhone in the center of the bear bag
At the heart of Goldman Sachs ’sales rating on Apple stocks were Cupertino’s challenges in meeting the benchmark for future iPhone sales growth. Rod Hall explained it:
“Apple is still showing strong execution, but we see that the fundamentals of 2020 will be disappointing as the long-awaited 5G iPhone fails to meet optimistic consensus expectations, and service revenue growth slows.”
To be honest, Apple’s latest financial results were far from exciting on the eve of the improvement in Goldman’s rating. Cupertino’s main revenue generator, the iPhone, gave frightening results in 2020, so some are wondering if smartphone sales will disappoint at the start of the 5G cycle.
The growth in smartphone sales preceded the year of the pandemic. According to data from independent research companies Gartner and Strategy Analytics, 187 million iPhones were sold in 2019, less than 217 million in 2018. And from 2019 to 2020, there was an unprecedented drop in iPhone revenue: from $ 142 billion to $ 138 billion last year.
Therefore, based on the latest trends, Rodlan’s bearishness towards the iPhone seemed reasonably justified. What was missing for Apple to roll over, according to analysts, was a negative catalyst. He believed it could be a COVID-19 pandemic.
Read more from Apple Maven: Apple stocks rise after WWDC Week: key drivers
When Goldman Sachs fell off his horse
The change in Goldman’s rating on the AAPL happened in April, after the company from Cupertino broke expectations and published a report on earnings. The second fiscal quarter of 2021 marked a turning point in iPhone 12 sales, after Apple faced delays in introducing the new device.
Apple reported $ 47.9 billion in iPhone revenue versus the Wall Street consensus of $ 41.5 billion. Year on year, the biggest increase was a staggering $ 19 billion, an increase of 65%.
These numbers probably caught Goldman’s Rod Hall.
Read more from Apple Maven: Big Tech Antitrust: Will Apple stock hit?
How Goldman Sachs sees Apple progressing
According to Goldman, a neutral position towards the AAPL is justified by one key metric: revenue per user. The analyst believes that the growth of this metric should be in line with US GDP. He points out that Apple’s revenue per user has remained static in recent years, only growing during the pandemic due to trends at home.
Rod Hall, on the other hand, sees the importance of privacy and believes Apple could benefit from increased demand as an advocate for consumer data protection. On the bearish side, the analyst remains skeptical that the services segment will grow as much as expected, and that only about 20% to 25% of active users will pay for Apple’s services.
Download Apple Mavena
Rod Hall was not the first and will not be the last on Wall Street to prove wrong in terms of stock ratings. The position of Goldman Sachs was the opposite and courageous for the same reason. Still, Apple Maven believes that Rod Hall’s cautious stance might still be too conservative.
Although trends at home may have skewed fiscal 2020 and early 2021 results, the 5G cycle, M1 architecture, expanding service portfolios, and generally resilient consumer spending may continue to help increase Apple’s revenue per customer – Goldman’s key concern.
Read more from our partner Amazon Maven: Can Amazon shares soon become a dividend payer?
(Disclaimer: This is not investment advice. The author may have one or more shares listed in this report. The article may also contain affiliate links. These partnerships do not affect editorial content. Thanks to Apple Maven for support)
Friendly communicator. Music maven. Explorer. Pop culture trailblazer. Social media practitioner.