Are Apple Stock Investors Discounting the Halo Effect?

Despite the negative sentiment currently surrounding Apple (NASDAQ: AAPL  ) stock, Gartner has identified Apple as having a greater homogeneous presence across smartphones, tablets, and computers than any of its competitors. These findings could be a testament to Apple's ability to create "halos" around its products, which turns first-time Apple buyers into long-term Apple customers. Considering shares currently trade in the single-digit P/E range, perhaps Apple stock investors are underestimating the company's ability to create customers for life.

The secret sauce
To boil it down, the strength of Apple's halo hinges on long-term customer satisfaction, and in order for Apple to continuously score high marks with its customers, it must continue to make excellent products. Luckily, iPhone customer satisfaction remains remarkably high despite the competition intensifying. The iPhone has received nine -- yes, nine -- consecutive J.D. Power and Associates awards for "Highest in Customer Satisfaction with Consumer Smartphones." For those keeping track at home, that's every award possible since the iPhone was introduced in 2007. Additionally, the iPhone ranked first for the second year in a row on the American Consumer Satisfaction Index.

600 million halos
When Apple hosted its Worldwide Developers Conference last month, it announced that over 600 million iOS devices have been sold since the iPhone's inception. Although it's a far cry from the 900 million Android activations that Google announced back in May, it gives the company a potentially enormous base of repeat iCustomers.

Additionally, it's believed that Apple will begin introducing an iPhone trade-in program that will allow previous iPhone owners to upgrade to the iPhone 5. The used devices would be refurbished and ultimately end up in the hands of emerging-market customers. Not only would this be a way for Apple to speed up the acceleration of iPhone sales, it would give the company an opportunity to expand its user base in emerging markets. Given the historically high levels of iPhone satisfaction, Apple stock investors could view this as a positive development since it would likely expand Apple's user base, and thus, its halo.

Wake up, Mr. Market!
With over 2 billion total computing devices being shipped throughout the world each year, investors have apparently grown unwilling to pay a premium for these device makers. As a result, Apple stock investors believe the company should only trade with a single-digit P/E ratio, which implies that investors are either questioning the quality of its earnings, or they anticipate little to no earnings growth in the future. Considering the widespread fear of cannibalization to Apple's business model, it's pretty safe bet that the latter scenario is likely.

Although Apple stock investors may fear that users will "trade down" to cheaper products like the iPad Mini or a rumored "cheap" iPhone, cheaper products give Apple an opportunity to expand its addressable market. As long as Apple can keep these users that would've otherwise been unable to afford an Apple product satisfied, these short-term cannibalization fears could be easily mitigated by strength of Apple's long-term halo effect, which keeps consumers coming back for more.

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  • Report this Comment On July 01, 2013, at 7:00 PM, CharlesClarke3rd wrote:

    Horrible article!!!! The Halo effect BELONGS to Microsoft and will occur in July with the release of HALO!!! How dumb are you titling the A$$le crap with halo effect. Halo is a Microsoft trademark for Christ sake. Stop being idiots bloggers. What market grew by 2.5% in May alone? Windows Phone. Who trademarked Live tiles the backbone of windows 8 and Windows Phone a year before iPhone made it to market? Microsoft. The 60% mark up of Apple products with no innovation will not last. Customer satisfaction is HIGHER with Windows Phone. And Microsoft can supply a common interface across all platforms and price points! Neither Apple nor Android can do this. Its ridiculous how dumb these blogs get. Silly bloggers, tech is for geeks!

  • Report this Comment On July 01, 2013, at 9:04 PM, Molando wrote:

    Would be good if you knew what the Halo Effect was. It has nothing to do with the game Halo. If you want a quick snapshot of windows 8 popularity, then check the reviews on Amazon. Microsoft have been making some massive blunders recently, with no start button option on windows 8 until recently. With unpopular DRM choices on the Xbox One, which they have had to make a u-turn on. The limitations of Windows RT is another example which has made many people worried about being early adopters of Microsoft products. I prefer Windows to Mac for day to day use, and happy with Windows 7.

    If the applications I like/need were all on a Mac rather than a windows computer, I would use it instead.

    It boils down to which system give the available applications and features that somebody needs. If all three can do so, then comes in factors like price, coolness, size, and current investment in apps on previous system.

    If somebody has £500 worth of apps on android, then they will probably not move to apple, unless the new features are worth more than the loss of the use of he apps.

    Apple has the Halo effect, apart from a mess up with their mapping software, in most cases it just works. Now their Halo is slipping a bit, after releasing a new iPad just 6 months after the New iPad, it has robbed people of the feeling that they have the best for a year. Where before people may have been happy upgrading every year or two, now many are holding back to see if they really need the features. There is no need to go any higher than retina resolution. A faster processor, or an extra hours battery life is not seen as a must have. Apple need to add the basics to catch up with the competition NFC, improvement in camera for phone, swype, but they need to add in a wow factor. Maybe the screen where you can feel textures, or a screen that folds, so you can have iPad size in your coat pocket as a man. Stereo speakers facing forward with better base, some form of lenticular passive 3d, ability to charge through USB cable again. Finally making it so that you only download the assets for the resolution you run in, rather than all.

    There needs to be something new to make the public want to move from the New iPad, or iPad 4 to the next one. You will always have first time buyers, but where the good money is, is current owners upgrading, and spending more on Apps, which ties them in for longer.

    Apple has two problems, the first being Apple. They introduce a new version of their operating system, then apps need it, but the new system does not work on older devices, or worse, works, but causes issues and does not let you roll back to a previous version. Many older iPhone users have hit these problems. It feels like Apple believe it will make people upgrade, but it just leaves a sour taste in the mouth, and more likely that people will swap systems to be safe in the future.

    Most people I know have an iPad, but only a quarter of them have an iPhone, the rest have gone with Android, due to the problems they have seen with the iPhone.

    The second problem is the starting of standardisation in Android.

    The reason that many apps and games look and run much better on an apple device, is that there are only a few set resolutions and processor specs to work with. With android there are currently over 300 systems you should make sure you program works with. I have the feeling that over the next couple of years some of the major Android manufacturers will start standardising resolution, and graphics processing more. This will allow the look and feel of apps to improve, and as android devices will continue to let you put in sd cards, and the new quicker type, then it becomes a much more attractive option.

    The iWatch when it arrives I think will boost the stock price, but be honest, how many of you would not wear your favourite watch, to put one on that everybody else is wearing. Unless there is some wonderful new feature, it is just a small screen that will drain your iPad or iPhone quicker by having to have Bluetooth turned on.

    Looking at a watch, or pulling my phone out of my pocket and looking at that, not that much difference in speed. They could save it a bit, if they let you customise it when you purchase it. You chose the material, the shape, made it much more individual, then when you pressed a button, the screen would come to life.

    They would have to do something quite spectacular to make most people want to wear it. If I was apple and an android manufacturer, I would add features like having an exclusive deal with match.com, that if a compatible person walked by, or in local area, then the watch would vibrate, the more compatible, the more it would vibrate. Or let let it display fitness information and link to heart rate monitors, or have it so it could run apps for the elderly, so if it realised that your relative has fallen to the ground, it would let the care home or you know. Rambling..

    In short, unless Apple release a new iPhone with wonderful reception, NFC and a big new feature, I can not see the stock returning to anywhere near it was before. The New iPad (iPad 3) has hit the same curse as windows xp sp2, it just works. There needs to be something other than an x% lighter, faster, brighter, etc, to make current owners want to upgrade.

    If 95% of iPad owners are satisfied, then why will they upgrade?

    You are at the end of your £40 a month contract, you could continue to pay £40 for the next two years with the next iPhone, or pay just £10 a month waiting for a phone with the next new must have feature.

    In England many phone contracts are now 24 months, rather than 12 or 18. 2 years is a long time to be stuck with a phone, when you have a feeling that in six months time apple may introduce a new must have feature.

    Apple needs to release a feature or device that will make us love them again. Something that people will be willing to stick with for two years.

    It has many happy customers, but happiness with what they have can stop them spending money, look at the amount of people still using windows xp sp2.

    Look at the latest Samsung, great phone, but personally I do not know a single person who has a sg2 or sg3 who has upgraded to it yet. You can wave your fingers over it rather than touching the screen. Pointless. It can see when you are looking away, nice but battery draining and still fairly pointless.

    Can see their stock going up when they make their next announcement, but without them making us desire their products, can see it levelling out again.

    Regards,

    Molando.

  • Report this Comment On July 01, 2013, at 9:41 PM, Molando wrote:

    Quick additional comment.

    The satisfaction with windows phone is higher than the satisfaction with iOS phone. It is a very nice phone for basic phone functions, but if you are a big app user, which feeds money back, then for app quality windows had a 8.3 and iOS 9.1. And for availability of apps, windows had 7.4 and iOS 9.4

    If I was a business user, after the problems with some iOS phones, I would probably find it less risky to ask my company for a windows phone, and would laugh at blackberry.

  • Report this Comment On July 02, 2013, at 12:06 AM, RudeboyRobbo wrote:

    Well, I certainly thought the article made some good points. Can't say anything good about the other comments though. True, I'm one of the assimilated. I've been an Apple fanboy since my first computer, a Mac LC with a 20 MB hard drive in 1991, so I guess it doesn't matter what I think to the Apple bashers.

  • Report this Comment On July 02, 2013, at 2:29 AM, singaporenick wrote:

    The comments made by Charles Clarke 3rd are amongst the most humorously ignorant I have ever read.I suggets he goes back to school for a while before posting further....

  • Report this Comment On July 02, 2013, at 9:33 AM, doorsx11x wrote:

    After 5 years with Apple, I'm realizing there is better value elsewhere.

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