Apple Revenue Growth 'Just Too Slow For Investors To Get Excited About': Analyst Highlights Advertising As Future Catalyst

An Apple Inc (NASDAQ:AAPL) analyst says the company could turn to advertising revenue and other areas of growth as concerns mount over iPhone 16 demand.

The Apple Analyst: Needham analyst Laura Martin reiterated a Buy rating and $260 price target on Apple.

The Analyst Takeaways: Apple faces concerns over iPhone 16 demand. Martin points to ways the Cupertino, California-based company could kickstart additional growth, including a focus on advertising revenue.

"The top debate is when will the next iPhone replacement cycle begin? Is it the iPhone 16 or iPhone 17 or iPhone 18?" Martin asks.

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Martin estimates that iPhone revenue will be over 50% of Apple's total revenue in fiscal 2024. This represents $200 billion of a $390 billion estimate.

"New iPhone sales are the single largest driver of AAPL's EPS over (or under) delivery."

Marting lays out the top nine debates from investors when it comes to Apple valuation below:

1. Upgrade cycle timing
2. GenAI
3. China
4. iPhone dependence
5. Vision Pro
6. Services
7. Health
8. Regulatory Risks
9. Deteriorating competitive position

Martin said Apple trades at a higher price to earnings ratio than the S&P 500 average, which makes the argument that the stock is either too cheap or too expensive depending on when the iPhone replacement cycle begins.

Apple's slow launch of GenAI with Apple Intelligence has increased the debate on iPhone demand and how the company will compete with other tech giants, Martin added.

On concern in China, Martin said the region represents a smaller portion of revenue in recent years.

"Most investors believe that rising geopolitical tensions are bad for AAPL from both a revenue and cost perspective, since most of their products are imported from China."

Martin said Apple's key strength is its ecosystem with a "loyal customer base" that uses devices and services from the company, which bring in "recurring revenue streams."

Martin argues that Apple should "aggressively pursue advertising revenue" as it has been slow in this area, including with its AppleTV+ streaming business.

"Over a 3-year time frame, AAPL's single-digit rev growth feels increasingly risky to us. It's just too slow for most investors to get excited about."

Apple could charge a similar advertising rate to Netflix "given its wealthy audience," Martin said.

Based on user metrics of 44.8 million viewers, the analyst sees a potential of $5.5 million in advertising revenue for fiscal 2024. This could add 0.9% to 1.5% to Apple's revenue growth rate, the analyst says.

"We believe that if AAPL followed Amazon's lead and built a robust advertising business over the next 5 years, this would meaningfully improve AAPL's business fundamentals by accelerating rev growth and expanding profit margins, which would result in valuation multiple expansion."

AAPL Price Action: Apple stock is up 3% to $226.47 on Thursday versus a 52-week trading range of $164.08 to $237.23. Apple stock is up 22% year-to-date in 2024.

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