A phablet is simply a large smartphone -- a phone-tablet. The term came about a few years ago as smartphones began to grow in size and some became nearly indistinguishable from smaller tablets.
Phablets account for a large portion of smartphone sales. They accounted for as much as 25% of sales in 2015, and their share is expected to grow to 32% by 2020, according to IDC estimates. And with that growth, there are three top stocks most likely to benefit: Apple (NASDAQ:AAPL), Samsung (NASDAQOTH: SSNLF), and Universal Display (NASDAQ:OLED).
Apple's big business
It's a no surprise Apple heads the list of top phablet stocks. The company sold 50.7 million iPhones in its fiscal second quarter of 2017, and the company earned about 63% of its total revenue in the quarter from those sales.
At least part of the company's solid quarter can be contributed to Apple's largest phone, the iPhone 7 Plus. "We are proud to report a strong March quarter, with revenue growth accelerating from the December quarter and continued robust demand for iPhone 7 Plus," Apple CEO Tim Cook said in a press release.
And it's not just Cook who views Apple's largest phone as an asset. The iPhone 7 Plus was the world's second best-selling phone in the first quarter of this year, surpassed only by the iPhone 7, according to Strategy Analytics.
There's reason to believe that the rest of 2017 will bode well for Apple and its larger phones as well. Several rumors have surfaced that Apple could launch a larger 5.8-inch phone (up from the 5.5-inch iPhone 7 Plus) as one of its new iPhone 8 models this fall. Investors may remember that when Apple bumped up the screen sizes for its iPhone 6 and 6 Plus, it sparked a sales boom a few years ago. There's no guarantee of seeing that for the next iPhone of course, but a larger, no-bezel iPhone could certainly spur its own upgrade cycle demand.
Samsung scalable success
Samsung was one of the early leaders in the phablet space and overall, things have worked out tremendously well. The company's larger phones have been a key ingredient in keeping pace with Apple's popular, albeit smaller, iPhones.
Samsung hit a few speed bumps with its smartphone sales in 2016, mainly from less-than-stellar Galaxy S6 demand and the infamous recall of its Galaxy Note 7 -- which was, er, prone to catching on fire. But things appear to be turning around for the phablet maker. Samsung's new Galaxy S8 and S8+ phones have impressive 5.8-inch and 6.2-inch displayswith no-bezel screens.
Universal Display's larger-than-life licensing fees
Universal Display licenses the research and technology it develops for OLED displays and sells some of the raw materials used to make the displays as well. The company's biggest customers are LG and Samsung, and the majority of its sales come from smartphones and tablets.
Universal has a lucrative licensing deal with Samsung that's worth $90 million for 2017, up from $75 million last year, and LG is currently locked into a licensing agreement with the company until 2022.
Universal is just coming off a fantastic first quarter, with revenue up more than 87% and net income skyrocketing from $1.9 million to $8.5 million year over year. The company's licensing-fee revenue, which doesn't include the current deal with Samsung, totaled $7 million in the quarter, up 32% year over year.
The company's CFO, Sidney Rosenblatt, expects much more growth from OLED market as well, noting in a press release that management believes the market is "poised to grow faster" than previously expected. The company believes the expanding OLED segment will translate into more licensing revenue and sales, which should boost 2017 revenue by 30% to 40% compared with last year.
Investors looking for the top phablet stocks for 2017 should give these companies strong consideration, and remember that even though large phones have been on the market for a while, there's still plenty of room in this segment for more growth.