Apple: Yawns And Snoozes At The WWDC

| About: Apple Inc. (AAPL)
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Summary

Apple’s WWDC was evolutionary rather than revolutionary and once again confirms flattening innovation curve thesis on AAPL.

However, payment and map updates are worth mentioning and could potentially expand Apple Pay’s addressable footprint and drive non-iPhone revenue.

Remain cautious on AAPL. Waiting for the new iPhone catalyst to turn bullish.

Apple's (NASDAQ:AAPL) WWDC was a yawn at best with the company once again disappointing the public with evolutionary features on Siri, iOS, TV and Mac. Investors will wonder whether Apple can stay innovative or simply become a laggard behind rivals including Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Samsung (OTC:SSNLF), Tencent (OTCPK:TCEHY) and Facebook (NASDAQ:FB). However, between the yawns and the snoozes, Apple made several changes that are worth mentioning and I believe that they could be accretive to the sustainability of Apple's ecosystem. The most important change Apple made was the availability of Apple Pay on third-party websites because I believe that this could significantly expand its payment footprint and make Apple Pay a competitive payment service on both the mobile and PC. The other key change was the in-map booking services, which I believe to be critical in delivering a superior iOS user experience and allowing Apple to be a leader in the emerging on-demand services market. Although these changes appear to be minor, I believe they could be accretive to the ecosystem in the medium term.

Worth reminding investors that my negative view on Apple is based on three pillars: First maturity of the smartphone market will continue to weigh on iPhone sales and the advancement of Asian OEMs could drive user migration away from the iPhone in favor of more affordable high-end devices (ie. OnePlus, OPPO). Second, the iOS ecosystem is at risk with the declining iPhone sales given that the ecosystem is dependent upon the hardware footprint. Unless Apple can generate extra dollars per iOS user, declining iPhone sales may ultimately translate to lower software growth. Finally, innovation curve on Apple has been flattening with the company's hardware and software trailing its peers. While I acknowledge that Apple has a solid ecosystem (I am an iPhone and an iPad user myself), I believe the risks are material and something investors cannot ignore. I remain cautious on Apple and reiterate my preference for FB and GOOG among the US large caps.

Although Apple Pay has made some progress on the mobile front, adoption rate has been mixed due to slower POS rollout and merchant acceptance. By allowing Apple Pay to be available on websites, Apple certainly expands its addressable market given that majority of the online shopping is still conducted over PC. More important, it makes Apple Pay a competitive payment provider compared to that of PayPal (NASDAQ:PYPL) and credit card companies. Where Apple can differentiate is its fingerprint confirmation where a user can order the item online and confirm it on the mobile device. This circumvents the painstaking process of entering payment information and could drive higher sales conversion for the merchants. While it is still too early to gauge the impact that Apple Pay may have on other third-party merchants, this move could pressure its competition and PYPL investors should certainly take note.

To further drive Apple Pay penetration, Apple made another modification to Apple Maps with reservation and service booking that I think are accretive to Apple as it expands into online-to-offline and location-based transactions. In my view, the update to the Apple Maps is another sign that Apple is laying the groundwork for map-oriented businesses. Over time, we could see additional features from its prior acquisition as Apple improves the map's accuracy and positions itself for mobile advertising as the location-based ad and O2O take off North America. With the map already becoming an essential tool, it is a logical step for Apple to allow small business owners to advertise via search results, push notification, location-based advertising and/or location-based promotion. As part of the transaction loop, local merchants would advertise on Apple Maps regarding a promotion, the user pays via Apple Pay, and close the transaction with either a pickup or shipment to home. Apple at the end can generate both payment and ad revenue as a result.

Conclusion, WWDC was a yawn most with little revolutionary changes but I believe the evolutionary changes in payment and map are incremental positives to the Apple ecosystem. However, I remain cautious as I wait for confirmation of a potential turnaround in the wake of iPhone launch.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.