Apple Inc. (AAPL): Why The Stock Price Will Continue To Rise

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September 10, 2014 9:55am NASDAQ:QQQ NYSE:XLK

stock price surgeDavid Zeiler: At its special event today (Tuesday), Apple Inc. (NASDAQ:AAPL) proved it still has plenty of innovative fire in its belly.

But Wall Street apparently wanted more, as the Apple stock price slipped into negative territory after the event ended, after rising as high as $103.08 while the iPhone 6, Apple Pay, and the Apple Watch were being unveiled.

AAPL closed Tuesday at $97.99, down 0.38%.

The AAPL stock price will probably meander in the short term as investors try to get a grasp on what today’s Apple news really means for future profits.

One problem for the Apple stock price is that most of this new was at least partially leaked before the event. What’s more, the impact of some of today’s announcements won’t hit the bottom line until next year, which was reason enough for Wall Street to pout.

apple stock price

Investors may also have doubts about the Apple Pay system, but the company’s emphasis on privacy and security at least shows it gets what matters when it comes to payments.

What matters is what each of these products will do for Apple stock down the line, and from what we saw today, each is likely to add significantly to the company’s earnings.

Here’s a closer look at the products that the Cupertino, Calif. company announced today, and what they could do for AAPL.

The iPhone 6’s Impact on the Apple Stock Price

Few were surprised by the iPhone 6 announcements – Apple senior vice president of worldwide marketing Phil Schiller even joked about people already knowing the two larger sizes of the iPhone displays, 4.7 inches and 5.5 inches.

The iPhone 6 is the smaller product, while the 5.5-inch version gets the moniker iPhone 6 Plus.

In fact, despite lots of other improvements – including a faster processor, a fancier camera, a barometer for fitness apps, and so forth – it’s the larger display that matters most. Bigger screens was the primary feature that attracting customers to Android-based smartphones such as Samsung’s Galaxy series.

This is the one product announced today that will hit the bottom line quickly. The two iPhone 6 models will go on sale starting Sept. 19, and so will be available for the entire December quarter, traditionally Apple’s most lucrative.

And Apple itself is expecting monster sales of the iPhone 6, as previous reports indicated that they had ordered factories to produce 70 million to 80 million units ahead of the launch – substantially more than the 50 million to 60 million iPhone 5s and iPhone 5c models the company ordered last year.

Since the iPhone accounts for more than Apple’s profits, such a bump in sales will serve as a catalyst for the AAPL stock price into the fall and winter.

The other two major announcements figure to have most of their impact sometime next year…

The Apple Pay Impact on the Apple Stock Price

The Apple Pay initiative appears to be every bit as ambitious as many suspected.

Apple announced it has made deals with the major credit card companies, Visa Inc. (NYSE: V), Mastercard Inc. (NYSE: MA) and American Express Co. (NYSE: AXP), as well as most of the major banks that distribute them.

Apple Pay will allow people to pay with any of their credit cards without needing the physical card. The iPhone 6 is equipped with a near-field communication (NFC) chip that will interact with the payment terminal, and Apple’s Touch ID will enable the transaction.

The appeal of Apple Pay is security; the transactions do not transmit all that credit card data, but instead a special chip in the iPhone generates a one-time code that makes just that transaction possible.

Apple could benefit from this by taking a tiny slice of the huge payments industry, which is expected to grow to $626 billion annually by 2018. If Apple were to get a third of that business, and take a fee of about 0.5%, it could rake in as much as $500 million a year.

Of course, if Apple Pay proves compelling to customers – and given the steady number of data breaches at retailers, that’s a pretty good bet – the feature could spur more iPhone sales, which would add much more to Apple’s coffers.

The Impact of the Apple Watch on the AAPL Stock Price

As a totally new product category, the Apple Watch (not iWatch, as it turns out) has tremendous potential to beef up AAPL’s bottom line.

From what was shown at the Apple event today, it truly looks like a home run, and not because of the way it monitors the wearer’s health or the way it makes communicating even more convenient.

As has happened so many times before with Apple, the magic of the Apple Watch is the intuitive way you control it. Instead of relying entirely on a touch interface that would be awkward at such a small size, Apple put much of that burden on the “digital crown,’ a combination button and scroll wheel that sits on the side of the Apple Watch.

It’s reminiscent of the genius of the original Mac’s mouse, or the original iPod’s scroll wheel.

Apple intends its smartwatch to be an entirely new platform, and has opened it up to developers, who can now start building apps for it.

While the Apple Watch looks like a big hit, its impact on the Apple stock price won’t be apparent for many months.

For one thing, it won’t be available until “next year,” which takes it completely out of the holiday quarter.

For another thing, the Apple Watch requires the owner also have an iPhone 5 or higher. That means the potential market for Apple’s smartwatch is, for now, limited to the 200 million or so people who fall into that category.

On the other hand, should the Apple Watch prove a smash hit with early adopters, this requirement could help drive iPhone sales, which would be a major win for AAPL.

Money MorningWritten By David Zeiler From Money Morning

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