Barron's - USA (2020-10-19)

(Antfer) #1
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


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