Two years after becoming the first publicly traded $ 1 trillion company, Apple (NASDAQ: AAPL) became the world’s first $ 2 trillion company in August 2020. This expansive growth in recent years makes it very clear that the company has done extremely well and that Apple’s shareholders have done very well.
After such a tremendous rush, some investors may be wondering if Apple’s shares are still a smart buy. Let’s take a closer look and see if we can answer whether Apple’s actions are still worth considering.
Apple’s biggest advantage
Apple has established itself as one of the world’s leading brands, and the company has become synonymous with sleek, modern technology. As a result, Apple’s iconic products – from iPhones and iPads to MacBooks and AirPods – have mass appeal on a global scale. And that makes it harder for lesser-known companies to compete with this tech titan.
Image source: Apple.
Apple market opportunity
To put Apple’s scale in perspective, the company had 1.65 billion devices in use around the world in December 2020. In addition, the iPhone is the most popular smartphone in North America, and the iPad is the tablet. market leader worldwide. While this makes it more difficult to generate future growth in these markets, Apple’s huge user base is still a valuable asset and could be the key that opens up future opportunities.
In late 2018, Apple changed its growth strategy to focus on services. At the time, this included the App Store, Apple Pay, advertising and cloud services and certain subscription services, such as Apple Music. But in the past two years, Apple has launched several new products that have dramatically expanded its service ecosystem.
In March 2019, the company partnered with Goldman Sachs and MasterCard to launch the Apple Card credit card. Shortly after, the company announced its new gaming service (Apple Arcade) and a new streaming service (Apple TV +). More recently, in late 2020, the company launched Apple Fitness +, bringing workouts led by professional trainers to various Apple devices.
Last year, Apple’s service revenue was $ 53.8 billion, representing about 20% of total sales. But the company’s recent wave of innovation is a good sign, and Apple’s expanding service portfolio could be a major driver of growth in the future. In addition, Apple’s gross service margin was 66% in 2020, more than double the product’s gross margin. In other words, as services account for a larger share of total sales, Apple is expected to become increasingly profitable.
Apple’s performance is improving
Poor iPhone sales in 2019 and the headwinds related to the pandemic in 2020 have slowed Apple’s sales growth. However, in the first fiscal quarter of 2021 (reported late last month), Apple’s growth accelerated substantially, driven by a wave of new products.
|
Metric |
2018 |
2019 |
2020 |
Q1 2021 |
|---|---|---|---|---|
|
Revenue growth (YOY) |
16% |
(two%) |
6% |
21% |
Data source: Apple SEC filings. The first quarter of 2021 ended on December 26, 2020. YOY = year after year
Apple’s performance in the last quarter showed strength in all product categories. The recent launch of the 5G-enabled iPhone 12 family led to a 17% year-over-year jump in iPhone sales. Similarly, Apple’s latest MacBook models with M1 caused Mac sales to increase 21% year over year. And service revenue increased 24% year over year, driven by the strength of App Store sales, advertising and cloud services.
Investors should be excited to see Apple’s sales growth reaching 20% year over year, and even more excited to see broad-based strength across all segments. Apple products are still in high demand and this is a good sign for the company’s future. If Apple can continue to increase its global share of devices, the company’s services business should continue to gain momentum quickly.
Image source: Apple.
A final word
Apple is already a huge global company, and to have a substantial impact on its growth trajectory, Apple’s service business will have to be correspondingly huge. This can be a difficult task to accomplish, especially since Apple will face several strong competitors.
For example, Android smartphones have a much larger global market share than the Apple iPhone, giving AlphabetGoogle Play Store is a serious advantage over Apple’s App Store. In addition, Apple TV + may find it difficult to gain momentum in the increasingly competitive streaming market, especially given the level of success that Netflix and Disney already reached there.
Investors should also note that since 2014, Apple has been working on an autonomous electric car as part of the Titan Project. Recently, rumors about the company’s pending partnership in an Apple-branded car with Hyundai failed at all, but hours after that announcement, Nissan signaled interest in working with the technology company. While the details are still vague, investors should pay attention to the situation.
Apple got where it is today through incredible innovation. From the first iPod to the latest iPhone, the company has successfully won over consumers for years. And I would never bet against Apple’s ability to create a new market opportunity (that is, an Apple car). In addition, the company has strong leadership in CEO Tim Cook, incredibly deep pockets and one of the most valuable brands in the world. From that perspective, Apple still looks like a solid long-term investment.