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The COVID-19 crisis may push some 5G iPhone sales into 2021, but Wall Street could be too upbeat about the company’s growth potential.
Lightshed Partners analysts Walter Piecyk and Joe Galone initiated coverage of Apple’s stock AAPL, +3.28% with a neutral rating Wednesday, warning that the expected 5G supercycle may be overhyped and that consensus expectations for 2021 seem too “aggressive.”
“We acknowledge that wireless operators will increase ad spend and use new network implementations to boost interest in 5G, but we still don’t believe it will be enough to drive a supercycle for Apple to the scale that investors might be expecting,” the analysts wrote.
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They had been concerned about 5G’s ability to drive a big wave of upgrades even before the pandemic, which they said represents a further challenge.
“We acknowledge that pent-up demand from current shelter-in-place conditions could push incremental iPhone sales into 2021, thereby increasing sales in that year,” they wrote. “However, we believe this tail-wind and easier comparables will be partially offset by weak economic conditions impacting both units and average sales prices.”
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Piecyk and Galone question whether iPhone revenue will be able to grow 20% next calendar year, as the consensus forecast currently models. They estimate only 4% revenue growth for the category.
They’re also worried that expectations may be overly rosy for Apple’s services business. “The consensus estimate for Services revenue in 2020 implies 18% growth,” they wrote. “We believe that is too high and forecast a slowdown to 15% growth in 2020 and further moderation to 13.7% in 2021.”
Piecyk and Galone estimate that Apple TV+ could see churn greater than 35% once yearlong free trials expire, unless Apple is able to roll out new content that keeps people engaged. They’re skeptical about Apple Music as well, given that the company hasn’t given an update on subscriber numbers since last June, when it revealed 60 million.
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Apple shares were up 3.3% in Wednesday trading. They’ve lost 11% in the past three months as the Dow Jones Industrial Average DJIA, +2.20% has declined 14%.
