On Monday, Apple Inc. (NASDAQ:AAPL), the creator of the iPhone, rolled out software enhancements at the much anticipated Worldwide Developer’s Conference (WWDC). From an analyst point of view, there is likely little impact to next quarter’s earnings forecasts. The event focused on software-based improvements, which some investors felt was a disappointment for those hoping for the next hardware launch (as in a new iPhone 6).
However, it is worth noting that new devices in the past, particularly on the product side, have historically occurred in the Fall (ahead of the Back to School season).
On a technical level, Apple’s stock has risen 20% in the last 3 months, an indication that portfolio managers are beginning to understand (or believe in its value, as in David Einhorn of Greenlight Capital). By comparison, the Global Social Media ETF (SOCL), is down 20% in the last 3 months as momentum names have suffered.
This includes social media companies such as Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), LinkedIn (LNKD), Yelp (NYSE:YELP), and Pandora Media (NYSE:P). All of which continue to trade at lofty Price/Earnings (P/E) ratios, which have likely spooked some investors after a banner year in 2013. The bull case scenario revolves around Apple (NASDAQ:AAPL) as a stable dividend paying company with growth prospects still under-appreciated by the markets (particularly with the partnership with China Mobile – CME).
In spite of mixed reviews regarding Apple’s most recent acquisition of Beats Music & Electronics for a price tag of $3 billion; note that this is still fairly minimal considering its fortress balance sheet of a whopping $41 billion in cash and short term investments.
Moreover, with AAPL trading at less than 15x next-twelve-month P/E and a dividend yield above 2%, the risk-reward ratio remains compelling compared to social media equity peers and corresponding bonds.
Goldman Sachs, for its part, said, “in many cases dividend yields for stocks are higher than their corresponding short-term bond yields. This, along with the high free cash flow generated by many stocks, provides an opportunity for the investor to synthetically produce bond-like fixed yield with stronger risk-adjusted total returns.”
KEY TAKEAWAYS FROM WORLDWIDE DEVELOPERS CONFERENCE
The new Mac OS “Yosemite” was introduced, which will be available for free this Fall. Importantly, Apple highlighted the importance placed on continuity between the Mac OS and iOS devices.
Putting this into perspective, the key for Apple is to continue to integrate iOS and Mac OS in addition to improving Siri (side bar: still a work-in-progress, and not exactly the “game-changer” analysts had hoped for).
The launch of the Touch ID provides third-party apps with the ability to ensure secure payments. Per Apple, management stressed the importance of uniformity across the installed base, easing developer requirements as well as providing a more secure experience. As it relates to the iCloud, Apple now has better pricing ($0.99/month for 20GB, $3.99/month for 200 GB), and also includes Microsoft (NASDAQ:MSFT) Windows support.
The newest applications for health and home were also announced; albeit with a caveat – this isn’t exactly “new news” as investors have been expecting this for quite awhile. Nike’s (NYSE;NKE) app was cited as an example of effectively measuring progress towards fitness goals. Apple has also partnered with home automation enterprises to provide better security initiatives. Mobile now has the ability to control devices outside and at the home, as in “the internet of everything.”
The company has also been rumored to be in negotiations with cable giant Time Warner (NYSE:TWC) to add live television content, although the merger with Comcast (NASDAQ:CMCSA) may complicate things.
It is no secret that Apple has an enviable consumer following. The tech giant has sold over 800 million iOS devices (including over 500 million iPhones and over 200 million iPads). Moreover, the App Store now offers 1.2 million apps, compared to last year’s level of 900,000, with over 75 billion cumulative downloads.
There have been whispers of an Apple-branded television set for the home, separate from the “Apple TV” console. At this point, investors will continue to have to wait for more color on the iTV, iWatch, and iPhone 6 devices.