The key to Apple Inc.’s (NASDAQ:AAPL) success is focusing on its other stuff, like the Apple Watch and Apple TV.
Before you have me sent to the funny farm, know that I’m being somewhat facetious. I don’t think a product like the iPhone, which contributed 54.6% of Apple’s total revenue in the third quarter of 2017, is easily replaceable.
However, if you consider what fringe products like the Apple Watch and Apple TV can bring to the table, the company’s long-term health does depend on its “other products” making a greater contribution to the top- and bottom-line.
Last December, I wrote a piece about Alphabet Inc (NASDAQ:GOOGL). In it, I explained that the company’s non-advertising-related revenue was the key to its future success.
“For the first nine months of the year, Google’s other revenues came to $6.7 billion, 31% higher than a year earlier,” I wrote on Dec. 13, 2016. “There’s nothing insignificant about this kind of revenue. On its own, it would be a decent-sized business.”
Between Google Play, Google Cloud and Nest, Alphabet has three businesses that it can scale much larger over the next decade. That’s incredibly important when you consider more ad scandals will most certainly wound, if not kill, the golden goose that is advertising.
Diversification in Alphabet’s case isn’t a bad thing. The same applies to the company that Steve Jobs co-founded.
New Apple Inc. Products
Although the iPhone X was the star attraction Sept. 12 at the company’s special event to launch its new phone, other products like the Apple Watch Series 3 and Apple TV 4K stole the show, according to InvestorPlace’s Brad Moon.
“While it’s the iPhone that’s responsible for AAPL stock being where it is today, two other new products the company also unveiled could turn out to be a much bigger deal than expected: the Apple Watch Series 3 and the Apple TV 4K,” Moon wrote the next day.
I completely agree.
I’m not a tech whiz like Brad, but it didn’t take me long to figure out that a tether-free, cellular-enabled Series 3 version of the Apple Watch would be a home run relative to its second release. Initial numbers bear this out.
“Apple Watch Series 3 models equipped with LTE began selling out within 15 minutes of when pre-orders became available for the device on Friday, September 15,” MacRumors stated Sept. 18. “It will now take a good three to four weeks to get one of the LTE Apple Watch models, with no in-store pickup available at this time.”
The company offered the GPS + Cellular version at $399 — just $70 more than the one without LTE. It’s not surprising, then, that 80-90% of the pre-orders were for the higher-priced version.
As for the Apple TV 4K, it’s simply getting the company back into the game, which is important given consumers’ desire for the highest quality viewing experience possible. As Moon states, AAPL is catching up to competitors like Roku and Amazon.com, Inc. (NASDAQ:AMZN).
While it’s not a game-changer like the Apple Watch, it still can become a significant revenue generator for AAPL’s other products segment.
Bottom Line on AAPL Stock
For the first nine months of fiscal 2017, AAPL’s other products generated revenues of $9.6 billion, a 9.1% increase from a year earlier, accounting for just 5.4% of its overall revenue.
With the Apple Watch Series 3 apparently a hit and the Apple TV 4K likely to be popular with consumers, it’s possible that the company’s other products could soon begin to make a bigger contribution to the top line than the iPad, something unthinkable until the latest launch.
That’s good news for AAPL stock.
Now, if only it could fix iTunes.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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