Wedbush: iPhone Stickiness Will Power Apple Through Economic Uncertainty

20 JULY 2022 - "The stickiness of the iPhone upgrade cycle is still being underestimated by investors in our opinion.” That’s the pull-quote Apple 3.0 used covering the latest note from Wedbush analyst Daniel Ives. If it sounds familiar, it should. It’s something he’s said for a while now. And yet, he seems to think that stickiness will help power Apple through the economic storm, into which we are all apparently sailing. Quoting his note:

The stickiness of the iPhone upgrade cycle is still being underestimated by investors in our opinion as we estimate that roughly 240 million of Apple's 1 billion iPhones have not been upgraded to a new smartphone in roughly 3.5 years. This importantly speaks to the Apple growth path over the next 12 to 18 months as iPhone 14 is set to be unveiled in the September timeframe.

You know how Bernstein Research analyst Toni Sacconaghi keeps talking about how little of Apple’s revenue is recurring revenue? Ives seems to see the number of iPhones ripe for an upgrade as recurring revenue. No, it’s not annual for each iPhone. But, the way he tends to see it, somewhere between one-third and one-quarter of one-billion iPhone owners are always ready to pull the trigger on the next one. Writes Mr. Ives:

While the nervous market backdrop is creating a fearful environment for tech stocks, we believe Apple's growth story remains well intact despite the shaky macro. Apple remains our favorite tech name.

I sort of skipped past Ives’ expectations for Apple’s June-quarter earnings. That’s because Ives sort of skipped past those. He thinks Apple will hit the Street’s projections, though the $4 billion to $8 billion headwind about which Cook and crew warned on the last call will be a thing for which to watch. “That said,” the note says:

…the Street is well aware of weakness this quarter and we believe ultimately is looking past June numbers to the September and December quarters with all eyes on the iPhone 14 production/demand cycle for the Fall staying on track.

Which brings us back to where we began: the oh so sticky iPhone. Mr. Ives has an “Outperform” rating on Apple shares. His price target on the shares is $200.