Bernstein’s Sacconaghi: Apple’s developers conference is for developers, not investors

Toni Sacconaghi, senior research analyst at Bernstein, was on CNBC to discuss what investors will make of the announcements coming out of Apple Inc’s (NASDAQ: AAPL) annual worldwide developer conference that started on Monday and will continue till Friday.

Shares of Apple are up around 0.5% today in afternoon trading. The stock has underperformed the broader markets this year after a stellar run last year. Apple is down 2.2% year-to-date compared to the 14.2% rise in S&P 500. According to the 38 analysts that cover the stock, the average price target on Apple is $159.85, implying an upside of nearly 27% from the current levels.

The developers conference is really for developers

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Sacconaghi said that even though everything announced so far at the conference sounded good but it will not change investors’ opinion while adding:

“The developers conference is really for developers. The keynote highlights some improvements that Apple has developed over the last year. I think there is incremental functionality but I am not sure we are going to get someone switching from Android to Apple as a result of new features launched yesterday.”

One of the interesting features announced at the conference was the opening up of the Facetime app to Android users. But Sacconaghi doesn’t think that it will have a material impact as ecosystems are sticky and there is usually not much churn between Android and iOS devices.

What investors are struggling with when they look at Apple

According to the Bernstein analyst, there are two things investors are struggling with. He said:

“One is what is the right valuation for Apple. So, it’s trading at 23 times earnings. That’s a modest premium to the market right now. It’s still a little bit high versus its history. Apple over the last 5-6 years has on average traded at about a market multiple. But one could argue that it’s a better company as it has a higher services revenue mix and services is a better set of businesses.”

Apple is currently trading at a valuation of around $2.1 trillion and has the highest market capitalization amongst the public companies in the world.

Talking about the second factor that investors are struggling with, he added:

“I think the other thing investors are struggling with is what might next year bring. As strong a year Apple has been having this year, the worry is much of the growth for Macs and iPads has been pandemic fueled and that the iPhone cycle is a pretty strong cycle particularly with regard to average selling prices. I talk to investors who worry that Apple revenues could be down 5% or more next year. ”