AAPL Stock Prediction: 0%-Interest iPhone Installment Plan Is A Tailwind for Apple

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Apple’s stock is now a buy because it is willing to be more aggressive in marketing its pricey iPhone products.
  • The big decline of iPhone sales in China last year is being addressed through lower price tags and 0% interest installment plans.
  • The interest-free iPhone installment plan is implemented through Ant Financial, a subsidiary of Alibaba.
  • The more iPhones it can sell, the better it is for Apple’s fast-growing Services revenue segment.
  • The predictive algorithm of I Know First has a very bullish 12-month forecast for AAPL. Weekly technical indicators and moving averages hints AAPL is a buy.

Apple (iPhone) has a debilitating headwind in notably weakened iPhone sales in China. Tim Cook blamed China as primary reason why Apple has shortfall in iPhone sales. The holiday quarter earnings report was upsetting because 4Q2018 China iPhone sales went down by -19.9%.  This is depressing because the China market accounts for 18 to 20% of Apple’s revenue. The two charts below explained the severity of Apple’s China problem.

 

Apple’s Q1 2019 (Q4 of 2018) revenue from China iPhone sales plunged to $13.2 billion. This was 36.4% lower than Q1 2018’s $18 billion. The steep dive in China is why Apple’s Q1 posted a -15% Y/Y dip in total iPhone revenue to $52 billion.  It is only judicious therefore for Apple to be more aggressive in marketing iPhones in China.

How Apple Is Addressing The China Difficulty

Tim Cook hinted last month that cheaper iPhones is highly likely this year. It’s a no-brainer for Apple to lower the price tags of its iPhone XS and iPhone XR handsets. Chinese firms like Huawei, Xiaomi, Oppo, and Vivo are offering sub-$500 flagship smartphones. The Xiaomi Mi 9 is less than $500 but it has better camera/video performance and is the fastest smartphone to date.

Xiaomi became no.1  in India. Apple never made it to the top 10 in India for the past five years. This is due to the overpricing of iPhones versus Chinese flagship Android phones. Perhaps after solving the China headwind, Apple will refocus its strategy in India. India now accounts for 10% of global smartphone sales.

While the rest of the world saw a 9.7% decline in smartphone shipments, India posted a 14.5 Y/Y growth last year.

The easiest way for Apple to disrupt the massive sales of Huawei and Xiaomi is for it to lower the price tags of its flagship phones. It is hard to grow sales of $1,000 and $800 iPhones when Xiaomi and Huawei can sell equivalent handsets at less than $500.

The other solution that Apple hopes to reverse the iPhone’s decline in China is zero percent installment plans for new iPhone buyers. This China-exclusive offer is in partnership with Ant Financial – the payments processing firm owned by Alibaba (BABA).

Chinese customers can buy an iPhone XR via installment payments of 271 yuan ($40.71) per month. The monthly installment payment for iPhone XS is 362 yuan ($53.92). The iPhone XR retails for 6,499 yuan ($968) in China. The iPhone XS sells for 8,699 Yuan ($1,295.61).

Other banks in China are also offering the same interest-free iPhone installment plans for Mainland Chinese. This special promo from Apple should help reverse the decline of the iPhone in China. Going forward, Apple can become a top vendor in India if it also offers the same zero-percent installment iPhone plan. Heck, this could be a massive sales booster for global iPhone sales if Apple offers this promotion in all countries.

Why Apple Needs To Sell More iPhones

Cheaper iPhones and 0% interest installment plans are necessary toward selling more iPhones. Apple needs more people using iOS devices to further increase the momentum of its fast-growing Services business segment. The more active users of iPhones, Apple TV, iPads there are, the bigger Apple’s income from iTunes app store sales and subscription payments.

The Services segment is now a $37.2 billion/year catalyst for Apple.

Apple Music and the upcoming paid streaming TV/video service are iOS/macOS exclusives. My takeaway is that Apple can sacrifice its high margins on hardware products because it can recoup this via increased in-app purchases and subscription payments.

Conclusion

Apple lowering its margins on iPhone hardware sales is a strong reason to stay long (or buy more) AAPL. Lower price tags and interest-free iPhone installment plans can boost the sales of iPhones in China and in any country.

My buy rating for AAPL is backed by its bullish one-year predictive market trend forecast from I Know First. AAPL’s market trend score is above 100 (178.42) and I Know First’s predictability score for AAPL is 0.76. I Know First has a great history of correctly predicting 12-month market movements of Apple’s stock.

How to interpret this diagram.

Further, I checked the weekly technical indicators and moving averages. They suggest AAPL as a buy right now.

(Source: Investing.com)

Past I Know First Success with Apple Stock Forecast

I Know First has been bullish on AAPL shares in past forecasts. On September 8, 2017, the I Know First algorithm issued a bullish 1 year forecast for AAPL with a signal of 165.93 and a predictability of 0.61, the algorithm successfully forecasted the movement of the AAPL share.  After a year, AAPL shares rose by 37.23% in line with the I Know First algorithm’s forecast. See chart below.

This bullish forecast for AAPL was sent to I Know First subscribers on September 8, 2017.

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Please note-for trading decisions use the most recent forecast.

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