The long-awaited iPhone supercycle is here, but it’s no slamdunkercycle, judging by the disagreement among Wall Street forecasters. I can see why.
is 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 features 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) biggest 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 a throwback, so are this year’s carrier subsidies, which appear to be the most generous in five years. For example,
(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 of
(VZ); HBO Max for AT&T;
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 signal near you. Jonathan Chaplin at New Street Research, a boutique focused 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 service 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 advantage” 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 fiscal year through September 2021, up from an estimated $140 billion in the year just ended. The current-year consensus, however, is made up of estimates 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 expectations. Apple trades at 31 times forward earnings estimates, up from 12 times earnings just four years ago.
On the other hand, Apple’s supercycles have been growing gradually less super, which hasn’t stopped the stock, as revenue from services and accessories has ballooned. Any shortfall 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, because he took an early streaming business called Broadcast.com public during the dot-com stock bubble, and then convinced Yahoo! to pay close to $6 billion in stock for it near the bubble’s peak. He then bought the Dallas Mavericks basketball team ahead of a massive boom in the value of television sports rights, and bought stock in two streaming players, Netflix and
(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 reopened 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?