Apple enjoys $60B bounce on iPhone demand reports
Lukewarm reception gives way to a blazing pace for device pre-orders
Apple Inc. stock is on its biggest winning streak in years as the company prepares to roll out sales of its new iPhone 7 on Friday.
The consumer electrics firm has piled on more than $60 billion to its market capitalization this week alone, as the company rides a wave of bullish analyst upgrades and strong early demand for its new smartphone.
Its share price rose 3.40 per cent to $115.57 on Thursday, capping its best four-day performance in two and a half years. Short sellers have been forced to cover about $250 million worth of stock on the advance, based on data from Thomson Reuters.
Retailers reported early demand for the new iPhone 7 has been incredibly strong, with sales of the Plus, a larger model, selling out on Apple’s website.
“We believe the commentary of the wireless operators over the past two days about iPhone preorder activity is meaningful,” Walter Piecyk, an analyst at BTIG, said. “Especially in light of conservative Street expectations for Apple and the widespread belief that the marginal changes to the iPhone 7 might not be enough to stimulate device upgrades.”
Apple unveiled its new iPhone 7, along with an updated Apple Watch, at a high profile event last Wednesday in San Francisco. The new phone introduced several new features, including wireless headphones, water resistance and a new dual camera, which will allow users to jump from wide angle to telephoto lenses.
Apple’s share price declined slightly in the days following the announcement, but this week began to rally as reports emerged that demand for the new 7 model was much stronger than anticipated. The stock has rallied nearly 11 per cent since the open on Monday.
Initial reviews of the 7 suggested the phone was an incremental upgrade over its predecessor, but analysts in recent days have turned more bullish. Amit Daryanani, an analyst at RBC Capital Markets, said Apple shares were set to break out even further if the phone continued to defy odds.
“Given the backdrop of subdued expectations for the iPhone 7, we think there is potential for Apple to surprise on the upside given share gain potential,” he said in a note to clients.
Both T-Mobile and Sprint issued press releases this week that said pre-orders for the 7 were four times what they were for the iPhone 6. Apple has already warned that given the high demand on its website, iPhone 7 models will not be available for walk-in sales this week.
Apple has a user base of 600 million, but recent earnings reports showed that sales of the iPhone had plateaued.
Katy Huberty, an analyst with Morgan Stanley, said current estimates are that 25 per cent of users will upgrade to the new phone, roughly in line with the previous adoption rate for the 6. This gives the phone the potential to surprise to the upside.
Adoption could also get a boost, Daryanani said, from the ongoing recall by competitor Samsung of one of its phones. Samsung is undergoing a massive effort to recall 2.5 million Galaxy Note 7 smartphones, which have suffered from battery fires.
Daryanani says the Samsung recall could help Apple’s stock up its relatively affordable multiple — shares trade at a price-to-earnings ratio of 12 right now — if the iPhone manages to eat into the Galaxy’s market share.