October 19, 2020 BARRON’S 13
STREETWISE
Apple’s supercycles have been growing gradually
less super. But that hasn’t stopped the stock, as
revenue from services and accessories balloons.
To Avoid Being Spun
By iPhone Supercycle,
Dial Down 5G Hype
T
he long-awaited
iPhone supercycle
is here, but it’s no
slamdunkercycle,
judging by the dis-
agreement among
Wall Street fore-
casters. I can see why.Appleis a
world-class wooer, and my iPhone
purchase history suggests that I’m not
hard to get. But I could go either way
on the newly unveiled iPhone 12.
Each year’s new top models come
with faster chips and cleverer cameras,
and some features that aren’t exactly
deal closers. Surgical-grade stainless
steel? Thanks, but I’m not planning
any invasive phone procedures. A
LiDAR scanner that can create depth
maps to, among other things, “show
you how a new sneaker will fit?”
Sounds great, George Jetson, but
maybe I’ll just stick a foot in one and
walk around.
Some years, however, bring fea-
tures so compelling that even fence-
sitters rush to upgrade. This year,
that’s supposed to be fifth-generation,
or 5G, wireless. It promises the speed
of a wired broadband connection, but
on-the-go, through a phone signal.
There are only two problems: The
networks are mostly unprepared, and
many of the users are stuck at home,
on Wi-Fi. That makes 5G about as
attractive now as a half-price cruise.
One of Apple’s (ticker: AAPL) big-
gest iPhone supercycles started in fall
2014, when it moved from four-inch
screens to the option of five-inch ones.
For those who never experienced the
smaller phone, imagine browsing the
internet on a McDonald’s hash brown.
But now, Apple is introducing a “mini”
iPhone with a 5.4-inch screen. It might
be on to something. Its biggest screens
are good for video, but they can cause
thumb fatigue among users who scroll
Twitter throughout the day for fresh
signs of the apocalypse.
If small screens are athrowback,
so are this year’s carrier subsidies,
which appear to be the most generous
in five years. For example,AT&T(T)
is offering $800, paid over 30 months,
for some customers who trade in an
iPhone 8 or more recent device and
sign up for one of its unlimited plans.
To determine which carrier is offering
the best deal, factor in how much
they’ll pay for your particular model,
over what time period, and whether
there’s an activation charge. Then
adjust for the cost of the service, the
signal quality in your area, and which
streaming service might be thrown in
free—Disney+ and Apple Music in the
case ofVerizon(VZ); HBO Max for
AT&T;Netflix(NFLX) forT-Mobile
US(TMUS)—and for how long. If the
analysis takes more than six weeks
and $30,000 in accounting fees, you
might be overthinking it.
To make matters easier, just go
with the carrier that has the best sig-
nal near you. Jonathan Chaplin at
New Street Research, a boutique fo-
cused on tech and telecom, calls the
subsidy deals similar enough. If more
than one carrier gives you good call
quality, T-Mobile offers the best ser-
vice deal “by a wide margin,” he says.
The 5G service that carriers are
promoting isn’t much better than 4G.
“Real 5G,” according to Chaplin, will
happen as carriers switch to higher-
spectrum frequencies, and there, T-
Mobile could have a “powerful advan-
tage” over the next couple of years.
“There is no reason for them to be
priced at a 25% discount, but for the
fact that they want to take share and
they want to do it fast, Chaplin writes
of T-Mobile’s service. He reckons that
the company will have plenty of room
to raise prices in the future. T-Mobile
US stock trades at 20 times 2022 free
cash flow.
Now, Apple just needs to bring in
the buyers. Wall Street expects revenue
of $160.4 billion from iPhones this fis-
cal year through September 2021, up
from an estimated $140 billion in the
year just ended. The current-year
consensus, however, is made up of esti-
mates ranging from $143 billion, which
would be an all-out flop, to $178 billion,
which would shatter the record of
$166.7 billion set in the fiscal year
ended in September 2018. The stock
price would seem to suggest high ex-
pectations. Apple trades at 31 times
forward earnings estimates, up from
12 times earnings just four years ago.
On the other hand, Apple’s super-
cycles have been growing gradually
less super, which hasn’t stopped the
stock, as revenue from services and
accessories has ballooned. Any short-
fall in iPhone purchases this year
could be made up next year, when 5G
will reach more of its potential and
mobile customers, hopefully, will be
more mobile. Wall Street expects 19%
earnings growth in the current fiscal
year and 7% in the next one. Investors
might be just as happy if the order of
those numbers switched.
I
spoke with billionaire Mark
Cuban this past week about
sports and streaming.
He knows a thing or two on
both subjects, as well as investing, be-
cause he took an early streaming busi-
ness called Broadcast.com public dur-
ing the dot-com stock bubble, and then
convinced Yahoo! to pay close to $
billion in stock for it near the bubble’s
peak. He then bought the Dallas Mav-
ericks basketball team ahead of a mas-
sive boom in the value of television
sports rights, and bought stock in two
streaming players, Netflix andAma-
zon.com(AMZN), which he still holds.
Pro basketball just finished its
season, and TV viewership during
the finals was lousy. Cuban says he is
confident about the future value of
sports teams. One good sign is that
the National Basketball Association’s
finals this year had to compete with
baseball, football, and the election—
an unusual pileup that won’t recur
once the NBA returns to a spring
finish. Still, Cuban says that he and
the league have talked about the
importance of being flexible on how
fans want to watch games now that
streaming is taking off.
Most remarkable to me is that pro
basketball, which stopped because of
a player Covid outbreak, reopened in
Disney World and finished its season
without one Covid case. Come to think
of it, Disney World doesn’t appear
to have had an outbreak since it re-
opened its theme parks in July, so it
must be doing something right. I’m no
constitutional scholar, but can we just
declare the rest of America part of
Disney World for two months?B
email: [email protected]
By Jack Hough
Barron’s Streetwise