AAPL Stock: More Competition Ought To Help, Not Hurt Apple

A recent article from eMarketer suggested that Apple (NASDAQ:AAPL) faces increased competition in the wearables market. That could be bad for AAPL stock.

I’m a contrarian by nature. I believe that Apple CEO Tim Cook can more than handle the heat in the kitchen. If anything, these so-called competitive threats will only get the company more focused and on its game. 

If you own AAPL stock, either directly or indirectly, through an exchange-traded fund (ETF) or Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), I don’t think you need to worry. 

Apple has got plenty of moves left to stay ahead of the competition. 

AAPL Stock and Market Dominance

As the Jan. 19 eMarketer article points out, Apple’s AirPods will get 31.1% of the U.S. hearables market in 2022. It will also grab 46.2% of U.S. smartwatch users. According to a March 2021 International Data Corporation report, Apple accounted for 34.1% of the 2020 worldwide shipments of wearables. It shipped 151.4 million units in 2020, 35.9% higher than a year earlier.

The bad news, according to eMarketer, is that in the third quarter of 2021, Apple’s worldwide share of shipments fell to 28.8%, 530 basis points lower. And Meta (NASDAQ:FB), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN) have all either developed new wearables or are working on upgrades to existing products. 

It stands to reason that if you put a 530 basis point drop in market share together with new products from some of its Big Tech competitors, the conclusion you’re bound to come to is that Apple’s losing its dominance. 

But is it?

The article doesn’t specify the Q3 2021 shipments for Apple or its competition. Globally, there were 444.7 million shipments in 2020, up 28.4% from 2019. Assuming shipments in 2021 increased by 23.1% — I’m spitballing an estimate that’s 530 basis points less than the 2020 shipments and equal to Apple’s decline through Q3 2021 — that would mean 547.3 million shipments, of which Apple would garner an estimated 157.7 million. 

So, even though Apple’s market share went down, the number of shipments for all of 2021 possibly grew by 6.3 million.

What Does That Mean for AAPL Stock?

Apple generated $38.4 billion in revenue from its Wearables, Home and Accessories segment in fiscal 2021 (Sep. 25, 2021, fiscal year-end). That’s 10.5% of its $365.8 billion in overall revenue. 

That makes the wearables segment the third-highest revenue generator behind iPhones ($192.0 billion) and Services ($68.4 billion). When comparing 2021 to 2019, wearables revenue increased 56.7%, the most significant increase of Apple’s five product segments. 

So, the competition might be heating up, but Apple’s business appears more robust than ever.

Apple reports its first quarter 2022 results on Jan. 27. Given the supply chain issues, there are bound to be some surprises that could hurt its stock in the near term. 

However, Barron’s recently reported that Morgan Stanley (NYSE:MS) analyst Katy Hubert anticipates Apple “to post modest upside to current estimates for the December quarter, with in-line guidance for the March quarter,” Barron’s Eric Savitz stated on Jan. 21. 

The analyst has a $200 target price — it trades at $159.50 as I write this — and an Overweight rating. A total of 44 analysts cover AAPL stock. They, too, give it an Overweight rating with a median target price of $182.

Unfortunately, regarding wearables revenue, the analyst sees $13.8 billion in the first quarter, 6% higher year-over-year, but $800 million less than the consensus estimate. 

It wouldn’t be out of line to say Apple’s results will be good but not great in the first quarter.

The Bottom Line

Apple is one of those tech stocks that always seems to play the underdog, even when it’s not. 

It’s been a while since I last wrote about Tim Cook’s baby. May 2021, to be precise. I recommended recent college grads buy AAPL stock for the long haul in my commentary. I concluded, “It’s an investment you stick in a drawer for 50 years.”

Up 33% since May 2021, it continues to deliver for shareholders. 

As for increased wearables competition, I say bring it on. Apple will be more than ready to meet the challenge. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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