Apple Inc. (AAPL) Losing Steam on Google: BAML

Apple Inc. (AAPL) Losing Steam on Google: BAML

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Apple Inc. (NASDAQ:AAPL) iPhone is losing out based on Google trends. Analysts at Bank of America Merrill Lynch (BAML) have done a survey on Apple Inc. (NASDAQ:AAPL) iPhone searches using Google trends. Analysts at Credit Suisse recently noted that they expect iPhone sales to slow. The analysts note that the study is not scientific. However, BAML states:

However, we believe this analysis helps to better gauge consumer interest and sentiment for a particular product before and after the launch and also relative to other competing products in the same period.

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Search volume for the “iPhone” keyword seems to have moderated sooner and also at lower levels in the iPhone 5 cycle vs. previous cycles. After a sharp spike in online search activities for “iPhone” shortly after the product launch, the query volume stabilized at around 20% of the peak within a month in the iPhone 5 cycle.

Apple iphone searches on Google trends

In the iPhone 4 cycle, search volume normalized at ~60% of the peak within 2-3 months, and for the iPhone 4S cycle, ~40% of the peak within a month.

Part of this could be explained by the fact that Apple has become increasingly efficient in operations and logistics in recent past, which enabled the company to roll out the iPhone 5 at a faster pace in more markets, thus driving a greater gap between peak and trough. The iPhone 5 was launched in 31 countries in first two weeks and 100+ countries in roughly three months. The iPhone 4S was launched in 29 countries in three weeks and 70+ countries in roughly three months.

BAML also notes that persistent search volume for the iPhone 5 in months prior to the actual launch, which suggests heightened media scrutiny and consumer expectations on the product well before the product announcement.

Global query volume for the iPhone remains above Samsung Galaxy and Note models, but the gap is narrowing. This is also consistent with actual unit shipments for the iPhone and Samsung Galaxy S/Note. ~30mn iPhone 5 units in the first full quarter (C4Q12) marked the biggest iPhone launch ever (~27mn/~9mn for iPhone 4S/iPhone 4).

BAML notes that while the iPhone 5 “somewhat failed to meet investors’ heightened expectations, it remains the best-selling smartphone model globally, compared to the best quarterly unit shipment of 18mn for Samsung Galaxy S3”.

However, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s latest high-end models (S3 and Note 2 combined) were only 8mn lower than the iPhone 5 in C4Q12, with the gap significantly smaller than ~17-18mn investors saw with iPhone 4S vs. Galaxy S2 + Note back in C4Q11-C1Q12.

This could be due to Samsung’s recent marketing push for its Galaxy lineup and better than expected traction for the Galaxy Note series (~80% share in the 5”-6” smartphone segment, which accounted for 3%+ of total smartphone units in 2012 but Apple does not participate).

However, despite the data, BAML believes that Apple Inc. (NASDAQ:AAPL)’s proven execution on product leadership and out-of-the-box thinking are not captured in the current stock price, and that Apple Inc. (NASDAQ:AAPL)’s innovation is still well, supported by Apple’s aggressive R&D and capex spending in recent years.

Additionally, BAML sees healthy trends for the iPad, both in keyword search volume and product unit shipment. Global query volume for the search keyword “iPad” maintains a wide gap vs. search keywords for competing tablets such as “Kindle Fire” and “Nexus”. BAML notes that this is consistent with Apple Inc. (NASDAQ:AAPL)’s 56% unit share and 70% revenue share in 2012, and we expect Apple’s leadership in tablets to continue.

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