Apple's Deal With China Mobile Is a Game-Changer

Apple's (NASDAQ: AAPL  ) long-awaited deal with China Mobile (NYSE: CHL  ) is a game-changer. Piper Jaffray analyst Gene Munster estimates that Apple could sell 17 million additional iPhones in 2014 as a result of the deal, which would represent only about 2% of China Mobile's more than 750 million mobile subscribers. Munster believes this could boost Apple's revenue by 5% in 2014. Based upon S&P Capital IQ estimates of about $185 billion, that 5% bump would equate to about $9 billion more in revenue for Apple. And Apple's earnings should receive a greater than 5% boost, since the iPhone is considered to be among Apple's highest margin products.

Some would say that Apple's stock has already moved in anticipation of this news, and judging by the muted response in Apple's share price (up only about 1%) on the day the deal with China Mobile was reported, that may in fact be the case.

But I believe this deal is worth far more than a simple 5% increase in revenue and earnings would imply. Whether Apple sells 17 million more iPhones in 2014, or even 20 million to 24 million, as research firm Cantor Fitzgerald estimates, that number is likely to increase substantially in the years ahead. Apple is in the process of doubling its store count in China, which should drive brand awareness. And in a region where many consumers love to touch and feel before they buy, Apple's highly regarded shopping experience could convert more Chinese shoppers into Apple customers. Even more importantly, as China continues to steadily build a massive middle class, rising incomes will make Apple's products more affordable to many Chinese consumers. As this occurs, I believe Apple will experience its legendary halo effect in which iPhone purchases lead to more iPad and even Mac purchases in China. That in turn, could help drive Apple's stock price significantly higher.

The Foolish bottom line
I've written before that I believe Apple is on its way back to $700 per share because of five potentially powerful catalysts, with the China Mobile deal being the first to come to fruition. If you're interested in hearing about another stock our expert analysts think can surge in the year ahead, The Motley Fool's chief investment officer has just selected his No. 1 stock for 2014. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


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  • Report this Comment On December 09, 2013, at 1:10 AM, singaporenick wrote:

    Except....no deal has been agreed.

  • Report this Comment On December 09, 2013, at 6:09 AM, DanManners wrote:

    All well and good but this is already priced in. Apple is actually overvalued right now and a correction is in place.

    Analysts have been basing their target prices with a 15 p/e. A 12 p/e would be more realistic. If Apple could get their earnings up to $ 43 for 2014 that gives a price target of 516. Of course Apple could sell off well below that based on normal trading patterns. I think you will see Apple trade down to about 440 if the markets sell off or if large funds decide to get out.

    Moodys warned that taking on more debt to do buybacks will hurt Apple's credit rating and they also warned of diminishing sales to come. Also, Citi's Glen Yeung and Raymond's Tavis McCourt warned of diminishing demand in Q1 of 2014.

    With much bad news last week, Apple stock will continue to fall until it bakes in the bad news that has been forthcoming. Citi has raised its price target from around 430 in July to now 580. That is confusing as they blasted Apple last summer.

    China Mobile is totally baked in as it is only a paltry 5 million more phones that will be sold according to Rob Cihra at Evercore, Apple may only sell an additional 5 - 10 million phones in 2014 due to China Mobile. 5 million helps but it won't be a game changer.

    Tavis McCourt said y/y share trens are strong in the US but elsewhere remain underwhelming according to Barrons.

    Back in July, Berenberg's Adnaan Adhmad had a $ 360 price target on Apple.

    These guys are never wrong. So I guess Apple is going back to $ 360 according to Adnaan. Where is he hiding?

  • Report this Comment On December 09, 2013, at 9:06 AM, twolf2919 wrote:

    @DanManners,

    "With much bad news last week, Apple stock will continue to fall until it bakes in the bad news that has been forthcoming" - what news is this? Your post is entirely based on analysts' *predictions* rather than actual news. And we know how accurate these analysts have been in the past.

    All the actual *news* I've seen has been positive - i.e. this morning's confirmation of the China Mobile deal, the extraordinary sales if iPhone 5s/iPads over the holiday weekend, Apple's win over Samsung in the recent damage awards ruling, etc.

  • Report this Comment On December 09, 2013, at 9:08 AM, twolf2919 wrote:

    @singaporenick - you better read the news again. China Mobile has officially begun taking pre-orders on the iPhone.

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