How Apple Has Kept Its Shine

It’s Halloween week, but for Apple analysts and investors it may as well be Valentine’s Day, as they have fallen back in love with the tech company this year.

The company continues to offer strong leadership lessons as it posted strong results for its fourth quarter this week. Even as the stock market struggles, Apple is also renewing Wall Street’s faith in the company. A report from the investment bank Jefferies & Co. this week said Apple has the potential to build a “massive, recurring, and high margin” services business.

Of course, no company is a sure thing, and the stock fell after the earnings report because investors found Apple's forecast for holiday period sales disappointing. But experts say Apple has turned to a combination of a premium pricing strategy, growth in its services business, and the sales potential of its smartwatch to help offset maturing iPhone sales. “Apple’s growth potential comes from its ability to create incremental revenue out of the products they already have,” says Craig Rowley, a senior client partner at Korn Ferry who specializes in retail.

Though iPhone growth has been in the low single digits, for instance, the introduction earlier this year of a new version at a $1,000 price point has helped grow Apple’s total revenue by double digits so far this year. Apple on Tuesday announced a refreshed iPad Pro, MacBook Air, and Mac Mini at higher price points. The difference between Apple fanatics and everyone else, Rowley says, is that a $1,000 phone is no big deal to the former.

That brand affinity, coupled with strong business fundamentals, is why Apple’s stock has outperformed not only many of its tech industry peers, but also organizations in other industries and broader market indexes. Apple’s 2018 performance vastly eclipses the broader S&P 500 and Nasdaq.

Jamen Graves, a senior client partner with Korn Ferry in San Francisco, says there is another reason besides business performance working in Apple’s favor—predictability. He cites the annual new product launch ritual as an example. “Continuity helps stabilize growth. Apple’s investors and customer base are trained to expect predictable patterns in their product releases and business cycle,” Graves says.

It’s an old adage on Wall Street that the only thing investors love better than money is predictability. That’s particularly true given the current volatility in the markets generally and tech stocks in particular, stemming from trade, geopolitical tensions, and questions around data protection and privacy. But even more importantly for Apple investors, says Graves, is that the company’s leadership and organizational structure is as predictable as its product launches.

“They don’t go through a lot of changes internally,” Graves says. “They’ve stayed with the same organizational structure and formation for years now, and that helps make the employee and investor base feel more stable and focused.”

Authors

  • Craig Rowley

    Senior Client Partner

    Bio >
  • Jamen Graves

    Senior Partner

    Bio >