Citi Managing Director in Equity Research Jim Suva joins Yahoo Finance Live to explain Citi reiterating its Buy rating on Apple and why they’re bullish on the smart tech market.
DAVE BRIGGS: All right, with Apple earnings less than two weeks away, there are no shortage of headlines. Tim Cook teaming up with Goldman Sachs on bank accounts. A new mixed reality headset on the way. Even a report that Taylor Swift music will be featured in Apple Fitness workout programs. Jim Suva is the sitting managing director of equity research out with a new Apple note, essentially saying you can “shake it off” to those reports of waning iPhone 14 demand. Yeah, I said it. You didn’t. Your price target is 185. That implies a 30% upside. Why, Jim?
JIM SUVA: Well, Dave, it’s great to see you again. It’s been a long time. But to catch up now, as we head into Halloween, it’s really not that spooky. The markets have pulled back, mostly on the increasing interest rates by the Fed. That being said, consumers, certain pockets are very weak, like personal computers. Other pockets, like for Apple, are quite strong. When you lose or break your iPhone or your AirPods, you replace them very quickly. You don’t think about it.
Yes, fuel, gas, food, and inflation costs have gone higher, but mobile computing and smartphones are here to stay. We believe Apple has upside, and a lot of the press reports about order reductions aren’t going to come to pass. Apple actually overorders because there’s usually a bottleneck or a supply chain hiccup. Those will be remedied. We simply think a pullback here on Apple warrants a good look at it from investors with a $185 target price.
SEANA SMITH: And Jim, in that bullet point in your most recent note about the iPhone 14, you also talked about a foldable phone next year. What can you tell us about this? And I guess, what do you think this will potentially do for Apple’s business? Is it going to lure in people that maybe haven’t converted to iPhones yet? Or do you think it’s just going to help upping the average selling price?
JIM SUVA: Definitely, it’s going to up the average selling price. But bringing in more from the Android ecosystem, right now, there are some Android phones out there. They’re doing quite well. But the average price is very, very high. People ask me mostly, what is the business used for? Hey, it’d be great to be able to walk down the street with Maps open and still be getting emails at the same time. Or for those who play video games, have a bigger screen or a split screen.
We think it will potentially bring an upgrade cycle, but we want Apple to be able to work out the crease or the fold in the phone. The last thing people want is to open and close it 300 times and start to be a hairline crack in the screen. That’s why Apple is taking its time coming to market with a foldable phone. But once people start to catch on that this is what they’re doing, the market will bring that forward and discount it. And it will be a driver to the upside for people spending more money in the Apple ecosystem in totality.
RACHELLE AKUFFO: And especially for people who love the gadgets that have been looking for some innovation on the product side, not always on the service side for Apple, which they’ve been focusing on, that’ll be a big selling point. I know you also talked in your note about what we’ve seen with the strong dollar offsetting some of these supply chain concerns, which have now started to ease. How much of a game changer is that going to be for Apple?
JIM SUVA: It’s something definitely to keep an eye on. Foreign exchange is very important, but also note, the COVID shutdown and the closures, whether it be in China or other parts of the world– China, India, all these other places that had to have a big shutdown– that hurts Apple two-front, both on the product side and also on the services. The Apple stores are closed. You can’t go in and get warranty. You can’t get help. You can’t get upgrades, and you can’t get additional peripherals.
So simply put, we believe that internationally, as COVID gets behind us, yes, FX is a headwind. But we believe that opening up the society, of people getting out and going shopping more, is going to be a positive for Apple. They’ve navigated through COVID remarkably well with the hard work of their suppliers, their supply chain, and the employees themselves. Once people get back and do more, they start to break their phones, drop their phones, and they look to replace them. But simply put, Apple has navigated this very well. FX is negatively impacting all the US companies. But their supply chain has been remarkably impressive.
DAVE BRIGGS: Jim, I want to talk some sports streaming here. Apple has the deal with Major League Soccer. Still no deal between Apple and the NFL and its expected Sunday NFL ticket package. What is your expectation in terms of Apple making an entry into sports streaming beyond the MLS? And what do you make of Eddy Cue, head of services, saying we were not interested in buying sports rights earlier this week on a panel in New York? And if I could just tack on one more, how significant is sports streaming for the investor story?
JIM SUVA: Dave, that’s a brilliant question and spot on. That’s important, but that’s one of the pedestals they’re looking at. But there’s many, many, many, many more. Whether it be movies, whether it be artists– and you started off the show by talking about some of that– there’s just a lot of content that Apple wants to put on its platform.
Yes, my family is on Apple TV. Apple TV+– we watch stuff, we stream it. But the amount of content, while it’s wholesome for me and my family, the number of options is still fairly limited. Any way to increase that is a positive– sports, music, artists, entertainment, lots of ways to do it. We view it as a positive.
Sports can be expensive. You got to do it right. You got to entertain it with people. You got to have the backgrounds, the foregrounds, the speakers, the commentators. It’s live. You can’t do a repeat. You can’t do a retake of it. Other things like movies and contents, they’re doing more and more with that. But we expect the Apple TV for it to be plus, plus, plus, as we go down the road to be more and more. But right now, it’s lacking a lot. Sports is one of those things that it’s lacking.
RACHELLE AKUFFO: And Jim, I want to ask you about this report from The Information, talking about Apple’s mixed reality headset perhaps offering some of this iris scanning for corporate payments. Where do you see the Apple ecosystem going and growing?
JIM SUVA: That’s a very forward-looking question that is spot-on and why people should own the stock. It’s the ecosystem and the platform. Right now, we’ve been talking about iPhones a lot. The reality is, going down the road, there’s no reason why people in education or pilots or other people shouldn’t be putting on AR, VR goggles and see what it’s like in biology class looking inside the human body to learn, why developing countries can’t get better education in medical sciences, why to get your kitchen or your house renovated. An architect can’t go in and take pictures, and you put on headsets and see the different paint colors and where the appliances go.
This is all eventually coming. People talk about gaming. Yeah, gaming is important for AR and VR, but there’s a lot of society that can really do better. You think about the home repair person coming to fix a water heater. They can put on the goggles and learn what’s wrong, instead of having to go out and be taught by an apprentice for two to three years. AR, VR, we think, is going to be very big for Apple down the road.
And this important platform of family of products will just add to the economics that are positive for Apple. I’m looking forward to those headsets. They may not be the first out in the market, but they’re typically tested and a very good experience. And that’s where the magic meet– the hardware plus the software for a magical experience. And that’s what Apple is all about.
SEANA SMITH: Jim Suva, always great to have you. Come visit us again. Thanks so much for joining us. Have a good weekend.
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