Credit Suisse hikes Apple price target, credits App Store growth

Despite having a cautious view on the iPhone, Credit Suisse raised the price target for Apple, crediting the growth from the App Store. Credit Suisse maintained the Neutral ratings however because the stock is close to its all time highs, claiming that it advises investors to wait for a lower point of entry.

Video Transcript

MYLES UDLAND: All right, welcome back to "The Final Round" here on Yahoo Finance, Myles Udland with you on this Friday afternoon. Again, watching the market here in rally mode after the jobs report. But we're losing just a little bit of steam here. The Dow is now up under 3%, 780-point gain. We'd seen the Dow up in excess of 900 points at its high. We had the NASDAQ, at one point, closing in on a record close. It doesn't quite look like we're going to get to that level today.

I was going to see where things go, but, again, losing just a little bit of steam as we head towards the closing bell. Still, huge rally on the street. And we'll keep our eye on that as we move towards the 4:00 PM hour. Want to turn now to our call of the day. And today, we're talking about Credit Suisse's latest note on the shares of Apple. And the company is looking at one specific area, or the firm, rather, is looking at one specific area of Apple's business that we have talked about a number of times.

And that's the services business-- and specifically, trends that Credit Suisse is seeing in Apple's App Store. They're seeing an increase in downloads 39%, or rather, revenue to developers is up 39% over the last year in May. So the stay-at-home trade has really turned into a boon for people who benefit from more consumers spending more time with their devices.

Now, Seana, I think we can all agree that when you're at home, and there's nothing else to do, people turn to the iPad, or they turn to the phone for something to do. But on the other hand, we've really talked to death about how Apple sells iPhones. And they sell more iPhones, that's going to be good. Certainly, this is an incremental positive here. But, you know, Credit Suisse with a neutral rating on Apple, I wonder what makes them hesitate, I guess, with the company more broadly.

SEANA SMITH: Well, yeah, I think it's also the fact that we have to remember Apple is up over 50% from the lows that it hit back on, what, March 22, March 23-- one the last couple of trading days of March. So I think the company has come a long way in just a short amount of time. So I think many analysts on the Street are a little bit skeptical as to whether or not Apple can continue this mass momentum to the outside to a price target of $2.95-- what-- about 10% lower, I guess, than where it's trading today.

So not a huge move to the downside that they're saying could happen. But I think this speaks to the fact that we've talked about this time and time again here at Yahoo Finance that Apple, of course, is more than just this one-trick pony. It's more than just the iPhone business and the App Store, their services business. And within that, the App Store obviously gaining traction. I think this also points to the fact that Apple's ability to continue to increasingly monetize its nearly 1 billion iPhone users-- its iPhone user base that it has around the world.

And within this App Store call, it was interesting because they were saying that the traction that it's getting is pretty broad-based. 8 of 10 of its app categories are getting more traction, quarter over quarter. It's not just the gaming part of its App Store, which we know has been extremely popular for quite some time. So I think, overall, while they do have this neutral call on Apple, I think Credit Suisse is pretty bullish on the company overall.

MELODY HAHM: Well and it's so fascinating to me because when we've talked about services as of late, we were referring to the new offerings, right? Let's keep in mind the App Store has been around since 2008. This is not a new pony, per se, for the Apple portfolio. And even looking at the progression through COVID-19-- initially, if you recall, there were many notes coming out saying that the App Store was suffering because people were consuming all of their media on actual computers, on their TVs.

They're not actually looking at their mobile phones, which is part of the reason why we've seen the struggles facing Quibi, right, which was a mobile-only option. And just thinking about the kinds of apps that I actually have seen thrive during this time are the focus keepers, trying to use an app so that you don't use your phone. Or the forests of the world, where you're incentivized to not use your phone during certain periods of time.

So it's ironic, because I think, even over the last 2 and 1/2 months, we've seen that the narrative really shift around what actually people are doing in their consumer behavior. And now, we're seeing a reversion to normal behavior, where people are curious about new apps, and developers are seeing some appetite.

MYLES UDLAND: Yeah, I never really know what to make of the weekly screen report at a time like this, Melody, right? I feel like it's shaming me. But, like, what else was I going to do? I wasn't allowed to do anything else but look at my phone.

MELODY HAHM: I mean, is yours going up or down?

MYLES UDLAND: It's been flattish after a significant jump in mid-March.

MELODY HAHM: Yeah, I think it's-- I mean, I guess, it's in parallel with, perhaps, some stock activity we've seen, where initially, I think mine popped. And then now we're seeing it's like-- is good news actually good news anymore? Like, in the case of Zoom. Or is this the peak, right? And I think my peak actually happened perhaps two or three weeks ago. And now, I'm, like, OK, this is untenable. [CHUCKLES] This is not sustainable behavior anymore. So for me, personally, I'm realizing that I'm not spending as much time on my phone.

MYLES UDLAND: Well, related to that, too, I think there's also been maybe a re-evaluation of the way that if you go back in time like five years, right, there was a big parental concern about kids using screens too much. But I don't hear any of that anymore because when the kids are in the house 100% of the time, they can be on the iPad as much as they want. Because otherwise, we're not going to make it here. So I think all of us who have re-evaluated this have changed quite quickly.

MELODY HAHM: And I think that's an excellent point you bring up. And even when we talked about Amazon getting into the cheaper tablet, right, to really provide an offering to kids. I think that's where, perhaps, the underlying message is, right. It's quote, unquote, "educational services." It's kids doing yoga. It's kids consuming all sorts of, you know, content during this period of time. And especially with no summer camps, with a lot of things up in the air during the summer, I anticipate that additional apps will be flooding the zone, right, to really support parents during this time.

MYLES UDLAND: Yeah, iPad summer camp-- that is what's coming up for kids in the summer of 2020.