Goldman Sachs Gives Apple Stock a Sell Rating

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By Chand Bellur

September 8, 2020 at 2:05 p.m

  • Apple stock, a fixture in both institutional and private investors’ portfolios, is one of the best-performing investments in history.
  • Apple’s failure to make up for declining iPhone sales with increased service and wearables revenues may decrease earnings.
  • Goldman Sachs analyst Rod Hall theorizes that Apple stock will decline 30% to $80 per share.
  • Rod Hall’s sell recommendation is nothing new, and Apple stock increased 70% after the advice first emerged.

Goldman Sachs Analyst Advises Selling Apple Stock

Crony Capitalism is a challenging game, and few players enjoy longevity in the system. Technology, in particular, is littered with the corpses of failed corporations. When I first moved to the SF Bay Area, Silicon Graphics owned Mountain View. Now they occupy a small office suite in a shared building. 

Apple, Google, Amazon, Facebook, and Twitter are neither too big nor established to fail. Does anyone even remember MySpace? They were so huge at one point, TV shows and movies referenced the protoplasmic social network. Today, few remember the social media platform, destined to be archived within television reruns and films from the early naughts. Given the poor long term prospect of technology corporations, Apple’s heydey may be coming to an end soon.

Goldman Sachs analyst Rod Hall contends that you should sell your Apple stock. The iPhone maker isn’t selling as many iconic smartphones as before, and attempts to increase revenues with wearables and services prove elusive.

Hall has some new data to back up his claim. Bloomberg recently cast doubt on Apple’s services strategy. It turns out that new Apple services, such as Apple Arcade and Apple TV+ are not generating the revenues that the company had hoped. Apple’s App Store and iCloud storage make up the bulk of service revenues, with Apple Music, Apple Arcade, Apple TV+ and Apple News+ providing lackluster earnings.

5G Won’t Create iPhone Upgrade Supercycle

Apple bulls contend that an upcoming iPhone supercycle will emerge, as the company catches up with 5G networking, already available on many Android devices. It remains unclear whether Apple will incorporate the technology into all new phones or just the most expensive models.

Research demonstrates that consumers aren’t particularly concerned with 5G networks. For one, they’re not widespread in the United States. Many smartphone customers still don’t have access to 4G LTE networks, and would prefer the industry to focus on bringing high-speed cellular data access to remote communities. Overall, when polled, the vast majority of consumers don’t care about 5G. This may change, as Apple’s reality distortion field can conjure up demand for features that other smartphones have had for months or years.

Apple’s success at creating an iPhone upgrade supercycle depends on marketing; however, the company is subject to macroeconomic conditions. The United States is in a severe recession, with Americans lining up for unemployment benefits and free food. The rest of the world is in a similar situation; however, some nations have put forth sensible policies to deal with economic issues.

The economy could turn around, but it will likely put a damper on iPhone sales. New iPhone models are several months away, as delays have pushed out the release date. Investors hoping for an iPhone upgrade supercycle may soon be left disappointed.

App Store Monopoly May End Soon

The iPhone, iPad, and iPod touch are unique devices in many ways. Unlike virtually any other consumer-oriented computing device, these iconic Apple products can only install software from the App Store. It’s as if you bought a car that can only run on fuel produced by the automobile manufacturer.

Apple takes up to 30% of the revenues from software sales and in-app purchases, upsetting many larger software developers who already have software distribution platforms. These larger players in the App Store contend that Apple is bleeding them for little benefit. 

The App Store only hosts the app download and handles billing. It does not act as the data center for streaming apps or online games. Although some fees should exist, hogging 30% of revenues for such little benefit is an abuse of monopoly.

Many third-party developers, including Tile, BaseCamp, Epic Games, Facebook, and others, are reaching out to Congress to challenge Apple’s hegemony. Congressional leaders on both sides of the aisle are aware of the problem and are developing legislation to address Apple’s anti-trust violations.

Recently, Apple’s battle with Epic Games reached a fever pitch. The Cupertino tech giant removed Fortnite from the App Store and revoked Epic Games’ account. This means that iPhone users can no longer install the most popular game on the planet. The move will only detract from device sales, as gamers will likely switch to Android.

The battle between Epic Games and Apple may end the App Store monopoly, allowing iOS and iPadOS users to install software from the web, like every other device on the planet. It’s amazing that this has gone on for so long, given Microsoft’s fate for simply bundling a browser with Windows. If Apple sold its reality distortion field, it could very well be their most beloved and enduring product.

The App Store employs full-blown robber baron tactics, which are unlikely to hold up. Top developers will offer their apps outside of the App Store at a discount. Apple’s highest-earning service will still generate revenue; however, the company will have to scramble to boost profitability and earnings per share. If they cannot achieve this difficult task, Apple stock will tank.

Large, Latent Corporations Can’t Innovate

Students of organizational theory are probably well aware that large entities are typically latent. A startup with a small number of dedicated employees is often nimble enough to outmaneuver the largest corporations.

The iPhone was a remarkable device. It was also the product of a much smaller Apple. The company was a fraction of its current size, with Steve Jobs creating an almost startup-like experience.

Times have changed, and Apple is clearly too big to innovate. The iPhone is currently the only top-tier phone that doesn’t support 5G networking. Both Samsung and OnePlus offer more affordable smartphones with better screens and cameras.

The iPhone’s main advantage is its processor. No other smartphone processor even comes close to being as powerful as the A13 Bionic chip. The problem is that Samsung and OnePlus phones are fast enough to create and consume media. 

Although iOS offers a better native gaming experience, Apple won’t allow cloud-based games in the App Store. The technology, which brings desktop quality games to mobile devices, is available on Android devices. This means that, even with weaker processors, the Android ecosystem offers a vastly superior gaming experience compared to iOS.

There are so many reasons to leave the Apple ecosystem. iPhone users can’t even install the most popular game on the planet. The phones, propped up by clever marketing, only outperform competitors with processing power, which is underutilized throughout the ecosystem.

Apple Doesn’t Make the Best Products Anymore

Beyond the iPhone and iPad, which are well-constructed devices, Macintosh quality deteriorated over the years, due to neglect. As the iPhone became more critical to Apple, the company pulled resources away from other products, resulting in their shortcomings and defects.

In my own experience, I purchased two brand new Macs in the past 18 months and treated them with kid gloves. Both machines broke to the point of being attractive “aluminium” bricks.

My MacBook Pro died after 18 months, being used infrequently and without touching the device. Well aware that the butterfly keyboard on this machine is problematic, I literately put the notebook on a pedestal. Using an external keyboard and Magic Trackpad, I didn’t even touch this machine. It broke after 18 months, and Apple wants $700 to fix a $1050 MacBook Pro that was barely ever used.

After a long-lived PC finally died, I convinced my mom to switch to a Mac. She is more familiar with Windows; however, I sold her on Apple’s reliability and ease of use. The Fusion drive on this machine failed after six months. Due to Apple Store closures around the world, we are unable to get this machine serviced.

For the past three months, it has been sitting in a box, while an older Lenovo all-in-one takes its place without any issues. It cost half as much as the iMac.

I’ve called Apple several times, and they aren’t willing to do much to resolve the issue. At best, I can drive 100+ miles to an Apple Store that’s open in a different town. The one that’s 10 miles away remains closed.

Given these experiences, I decided to abandon the Apple ecosystem, at least for my daily drivers. I just ordered an LG Gram laptop and a Samsung Galaxy S20 smartphone. Yes, Appledystopia (finally) switched to Android and came back to Windows.

Although I prefer macOS to Windows, one can only use the former on a Mac. As it stands, I have absolutely no faith in the Macintosh or Apple. Given my experiences, those of others, Apple’s recent shortsighted actions, and other factors, it’s unlikely that Apple stock will be a sound investment for the future.

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