Is The Nice Open air Apple’s Subsequent Frontier?

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The central theses

  • Apple has announced the ability for iPhone 14 users to send emergency SOS messages via satellite even if their cellular or Wi-Fi range is out of range
  • They have committed $450 million to build infrastructure for the service, including an option to acquire a substantial stake in private satellite company Globalstar
  • Along with the announcement of the Apple Watch Ultra, the company appears to be making a serious foray into the outdoor leisure sector, which is worth almost $700 billion a year in the US alone

Like every year, all eyes were on the Apple event last week as they announced their latest iPhones, Macs, iPads and software updates. The event may not have the same hype as in years past (no one sleeps on the sidewalk for the iPhone 14), but it’s still an important glimpse into Apple’s upcoming plans.

In general, the announced new features showed incremental improvements and upgrades across the board, but there was a common thread running through some of these announcements that offered some clues as to one of Apple’s next areas of growth.

That is, the adventure and outdoor market.

It’s been rumored for some time that Apple would add the ability for iPhone users to send messages via satellite, and that feature was finally announced at last week’s event.

They have agreed a partnership with satellite company Globalstar that will allow iPhones to sell short emergency text messages even when the user is out of cellular range.

This might seem like a small feature, but it could have a massive impact on the outdoor recreation industry. This is especially true when combined with the launch of their new Apple Watch Ultra.

Globalstar’s GRMN stock prices and outdoor watch leader Garmin have reacted strongly to the news. So let’s break down what this push could mean for Apple and analyze how it could impact companies already in this space.

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Apple’s new satellite features explained

The new feature allows intrepid adventurers to send an SOS text message to emergency services outside of WiFi and cell phone range. This service is not intended for hikers asking their partner to stock up the beer fridge or order pizza, it is reserved for people who are in actual danger and need emergency assistance.

The phone first attempts to connect to emergency services using traditional methods, i.e. cellular or WiFi. Even if a user’s phone provider doesn’t have a signal, other providers can be used to contact 911.

If this connection fails, the iPhone connects to a Globalstar satellite and relays the user’s information, such as location, medical information, and remaining battery life. It can also be set up to notify your personal emergency contact that you’ve called 911.

The feature will only be available on the iPhone 14 and only in the US and Canada at launch.

Dedicated satellite phones have been around for a long time, but they are expensive to buy and use, and have generally only been used by adventurers who have truly gone off the grid.

With this update, some of the core technologies of these dedicated devices will become available to anyone who owns the latest iPhone.

The deal between Apple and Globalstar

Apple will be raising $450 million to get this new feature off the ground, with the majority of that being paid to Globalstar in a deal that allows Apple to buy a percentage of the company.

That sounded like great news for the company until it became clear that Globalstar would have to borrow millions of dollars in addition to Apple’s investment.

That’s a problem for a company that already has $350 million in net debt on trailing-12-month sales of about $140 million.

Apple will also offer this service to iPhone users for free. Well, you can imagine that not every year will there be that many people needing to call 911 when they are out of cell phone range, which would indicate that the revenue going to Globalstar is not will be so important.

That being said, the fact that they’re spending $450 million to set up the satellite infrastructure suggests there are bigger plans for the future of space.

There are already a number of companies vying for ownership of the stratosphere, with Elon Musk’s Starlink being a key player, as well as Lynk Global and AST SpaceMobile.

It’s clear that Apple is committed to enabling its users to get off the beaten track and still stay connected.

Should Garmin be worried about the Apple Watch Ultra?

This boost is further amplified by the release of the new Apple Watch Ultra. It’s bigger, sturdier, and more expensive than any previous Apple Watch, and it’s aimed squarely at the Garmin-dominated “premium” fitness watch category.

It’s an odd position for Apple considering the rest of their product line is aimed squarely at the premium end of the market. When it comes to fitness watches, watches like the Garmin Enduro series can be well over the $1,000 mark.

The higher price comes with advanced mapping, heart rate and fitness features, as well as increased durability and battery life.

It makes the regular Apple Watch range, which starts at around $250, seem like a relative bargain.

While the original Apple Watch was designed for young professionals, casual joggers, and busy moms and dads, the new Ultra (along with many Garmins) is aimed squarely at marathon runners, triathletes, hikers, and mountain bikers.

For now, the new Ultra is a long way off for die-hard adventure lovers, but it brings the series closer than ever to the wrists of trail athletes around the world.

The ace up the sleeve for Apple could be the new satellite capability. Although the feature won’t be available on the Apple Watch for now, it’s not hard to envision it being added to future versions.

With the ability to use the Apple Watch both as a regular phone over a cellular network, and potentially as a satellite communications device in the future, it could offer outdoor enthusiasts and athletes a compelling package that sits right on their wrist.

However, there’s also some evidence that Apple is piecing up the pie for companies already in this space. One might expect Garmin’s stock to plummet on news that Apple had a new competitor for its high-end watches, but the opposite happened.

Garmin stock has fallen significantly so far this year, but it’s actually up 3% on Apple Watch Ultra news.

It could be that marketing dollars spent by Apple to highlight the benefits of a rugged, outdoor-focused watch could bring more exposure to the product segment overall, which could work in Garmin’s favor in the long run.

It remains to be seen how far Apple plans to push into this space and how much impact it will have on Garmin’s bottom line.

The market potential

All in all, it makes for a compelling story for Apple’s foray into the outdoor leisure space. If you don’t already run or bike the trails every weekend, you might be surprised by the sheer size of this market.

Garmin’s market cap is currently around $18 billion. That’s similar in size to other big global companies like Spotify, Coinbase, and Best Buy.

According to the Bureau of Economic Analysis, the outdoor leisure sector is worth $689 billion and contributes 1.8% of US GDP. Amazingly, this makes it a larger industry than mining, utilities, farming and ranching, and chemical manufacturing.

Obviously Apple won’t be after this whole industry unless the Apple Car rumors turn out to be the Apple Canoe instead, but it does give an indication of the extent of the possibility in this space.

What does this mean for investors?

The investment landscape is such that we have large companies at the top of the tree that can enter a new market and dominate whenever they want. A $450 million investment might sound like a lot of money, and it is, but it accounts for just 0.22% of Apple’s current cash reserves.

That’s the equivalent of someone with $100,000 in the bank spending $220. Sure, it’s not nothing, but it’s really no big deal either.

We just have to look at what they did to the rest of the smartphone market when they invented the iPhone. Multi-billion dollar companies like Blackberry and Nokia all fell by the wayside.

This is a point worth noting for investors trying to pick individual stocks. No matter how good a business is doing, something could always come around the corner to change its fortunes.

That’s why diversification is so important.

That has never been more important than now, with an economy that is sputtering and inflation that remains stubbornly high. When economic growth is low or even negative, large companies tend to do better than small ones.

They typically have more cash, more stable revenue streams, more diversified income streams, and are less dependent on growth to meet their goals.

That’s why we created the Large Cap Kit, which uses sophisticated pairs trading to go long on large companies and short on small and mid-sized companies.

This means that as long as large companies outperform small or medium-sized companies, investors can benefit regardless of whether the overall market is trending up, down or sideways.

It’s the type of trading typically reserved for high profile hedge fund clients, but we make it available to everyone.

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