What Wall Street Warming up to Apple says about a recession
Apple’s share price has largely recovered since it took a beating in 2018, sliding from over $220 a share to below $150. Apple is now trading around $198 a share.
So much volatility in such a short period of time spooked many investors. It also doesn’t help that the smartphone business itself has slowed dramatically. Even Samsung felt the effects of a slowdown, with profits expected to drop 60% this quarter.
The leading manufacturers are feeling the pinch. Two engineers from Samsung let me know last year that the company feels consumers have “smartphone fatigue” and efforts are being focused on B2B software. True to form, Apple has instead doubled down on consumer services.
Apple has now offers iCloud, iTunes Match, Apple Music, AppleTV+ and Apple News+ subscriptions. As I suggested, Apple has even launched a gaming service, Apple Arcade.
There was a point in time where services such as Netflix and Amazon Prime Video were aimed at young cord cutters. Spotify was seen as a smart way to save money to (legally) access digital music. The cost of subscribing to all of these services to enjoy their exclusive content is expensive.
With Apple offering now over 4 subscription services and its share price surging, what does this mean for the economy in general?
Apple being such a huge company, weighs heavily on the entire US stock market. The end of 2018 was brutal for many companies. Stocks slide and we from the longest bull market in history to frosty sentiments from investors. Stocks have started rebound in 2019.
While there are some looming fears (trade war, tech IPOs performing poorly), things seem to be on the upside. Subscription services are a huge indicator of the economy at large. If people feel comfortable spending on these luxuries, they aren’t feeling as much financial pressure as economists predicted.
People typically cut back on these extra services once the economy slows down. If someone loses their job, they are much more likely to cut a subscription to Apple Music than normal. Fortunately, as we have learned from the last recession, this does not mean they will stop buying hardware.
Unless Apple has grossly miscalculated the subscriber base it can continue to attract and maintain during a downturn, Apple is telling the world the economy is fine. People will have disposable income to spend on their new services.
In future expect Apple to offer a bundle for people who want multiple services or sign up for their new credit card.
Apple trying so hard to boost profits through services revenue, tells me their outlook on the global economy is positive.
Maybe we will bypass a recession for now.
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