Apple fans probably were not expecting this year’s all-important September product launch to feature a virtual fitness studio among the headline unveilings, but such is the sprawling empire that Tim Cook has created that the world’s largest consumer products group can channel Jane Fonda just for fun (James Dean writes).
There was also a more mundane reason: the new iPhone will be launched later than usual because of delays caused by the pandemic and Mr Cook needed some filler. Still, that Apple has the gumption to launch things like Apple Fitness+ shows just how much it has evolved.
In the three months to June, its services division, which comprises software such as Apple Music, iCloud and the App Store and services such as Apple Care and Apple Pay, made up about a fifth of revenue, compared with about a tenth in the same period five years ago. Yet even as the company diversifies, gadgets remain central to its success. And although its business model is more complicated by degrees, its approach to making gadgets has, in large part, stayed the same: take a long, hard look at what everyone else has done, then do it better, make it prettier and market the hell out of it.
Apple was years late to the smartwatch game, giving the Watch its debut in 2015, at which point the market was dominated by Fitbit and Garmin. Yet analysts reckon it sold between two million and 4.2 million in the second quarter of 2015, which likely made it the world’s bestselling wearable.
Now the Watch accounts for more than half of global smartwatch sales. Apple does not say how much the Watch earns, but it accounts for the majority of sales at the wearables and accessories division, which brought in $24.5 billion last year, up from $17.4 billion in 2018.
On Tuesday Apple unveiled the Watch Series 6 with a price tag of £379. It features a new blood-oxygen monitoring system to complement its heart-rate monitor and electrocardiogram sensor. The new Watch SE, which costs £269, lacks many of the features of the Series 6, but is designed to compete with cheaper rivals. There were a £329 iPad and a £579 iPad Air, too.
Apple announced several subscription bundles, including a £14.95-a-month package that brings together Apple TV+, Apple Music, Apple Arcade and 50GB of iCloud storage. And there is more to come this year, if rumours are to be believed: new Mac computers, the company’s first over-ear headphones and a new Home Pod speaker.
Despite the cavalcade of launches, the humble iPhone remains Apple’s most important product, being the largest driver of its sales and share price and the hardware platform upon which its software and services are built. This could be why Apple stock barely fluttered on Tuesday.
For investors, it is now a waiting game until the iPhone 12 is released, probably next month. The question is whether it will prompt a “supercycle”, a sales boom that exceeds the normal. The bulls think it will, saying the expected super-fast 5G data will be a game-changer.
Apple shares have been on a tear, but with no significant product news until this week and with the iPhone launch delayed, one has to ask why. Could it be that Apple and other heavyweight technology stocks are only temporary homes for all the money that has poured out of airlines, hotels and other companies hit hardest by the pandemic? Maybe overly enthusiastic millennials on Robinhood and other stock-trading apps have ramped up the price?
Whatever is going on, the hype suggests that a supercycle is all but a given. Unfortunately, hype has never been a particularly useful tool for investing in the long term and it may be best to wait and see what the new iPhone actually looks like.
Advice Avoid
Why Shares remain too expensive after recent ramp
Merian Chrysalis
What a pity, it is said, that small investors haven’t been able to benefit from the extraordinary success so far of unicorns like Klarna and THG, two companies that have achieved remarkable valuation this week (Patrick Hosking writes). Actually, they have.
Merian Chrysalis is a London-listed investment vehicle set up two years ago precisely to back promising, technology-enabled disruptors before they float. It has been a big backer of both those companies.
Klarna, which supplies “buy now, pay later” credit to online shoppers, revealed this week that it had raised a fresh $650 million from investors, including Chrysalis, that put a value on the business of $10.65 billion. Chrysalis first invested at half the present valuation last year. THG, which runs several direct-to-consumer websites, as well as providing the software for consumer products groups to do the same thing, is in the process of floating, with grey market dealings pushing the share price to a 29 per cent premium on day one. Chrysalis first invested in December 2018. Those two coups alone are set to push the official net asset value figure 6.8p-per-share higher. It was last declared at 137.26p at the end of June.
With these successes, the trust, now managed by Jupiter Fund Management, is starting to look capable of picking the big hitters of the future, or at least the companies that other people think will be. In its “key information document”, the trust rates itself four out of seven on the risk spectrum. That sounds too low. Many of its investee companies are in the heavy investment stage and make no profits, but it needs only one or two winners.
There are potential conflicts. Jupiter owns 23 per cent of the company through other open-ended funds that it manages. That might make it interesting if the Chrysalis board ever had to sack the fund managers. Some investors worry, too, that the business has no investments in the United States or China, the nations that have most successfully spawned tech-enabled worldbeaters. It is also undiversified, with three investments alone accounting for half the portfolio.
Advice Buy
Why High-risk, but managers have good early track record
