Two years after becoming the first $ 1 trillion publicly traded company, Apple (NASDAQ: AAPL) became the world’s first $ 2 trillion company in August 2020. Such tremendous growth in recent years makes it quite clear that the company has done extremely well and that Apple’s shareholders have done well too.
After such a great run, some investors may be wondering if Apple stock is still a smart buy. Let’s take a closer look and see if we can answer whether Apple stock is still worth considering.
Apple’s greatest advantage
Apple has established itself as one of the world’s leading brands, and the company has become synonymous with sleek, trendy technology. As a result, Apple’s iconic products – from iPhones and iPads to MacBooks and AirPods – have massive appeal on a global scale. And that makes it more difficult for lesser-known companies to compete with this tech titan.
Image Source: Apple.
Apple’s market opportunity
To put Apple’s scale in perspective, the company had 1.65 billion devices in use worldwide as of December 2020. In addition, the iPhone is the most popular smartphone in North America and the iPad is the market-leading tablet worldwide. While this makes it more difficult to generate future growth in those markets, Apple’s huge user base is still a valuable asset, and it could be the key to unlocking future opportunities.
At the end of 2018, Apple shifted its growth strategy to services. At the time, those were 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 released several new products that have drastically expanded the ecosystem of services.
In March 2019, the company entered into a partnership Goldman Sachs and MasterCard to start 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, at the end of 2020, the company launched Apple Fitness +, which offers workouts led by professional trainers on Apple’s various devices.
Last year, Apple’s services revenue was $ 53.8 billion, accounting for about 20% of its total revenue. But the company’s recent wave of innovation is a good sign, and Apple’s growing service portfolio could be a major driver of growth going forward. In addition, Apple’s gross margin on services was 66% in 2020, more than double the product’s gross margin. In other words, as services make up a larger portion of total revenue, Apple should become increasingly profitable.
Apple improves performance
Weak iPhone sales in 2019 and pandemic-related headwinds in 2020 caused Apple’s sales growth to slow. However, in the first quarter of fiscal 2021 (reported late last month), Apple’s growth accelerated significantly, driven by a wave of new products.
|
Metric |
2018 |
2019 |
2020 |
K1 2021 |
|---|---|---|---|---|
|
Sales growth (YOY) |
16% |
(2%) |
6% |
21% |
Data Source: Apple SEC Filings. Q1 2021 ended December 26, 2020. YOY = year after year
Apple’s performance in the last quarter was strong across all product categories. The recent release of the 5G-compatible iPhone 12 family led to a 17% year-over-year increase in iPhone sales. Likewise, Apple’s latest M1-powered MacBook models drove Mac sales up 21% year over year. And service revenue grew 24% year over year driven by strong sales, advertising and cloud services in the App Store.
Investors should be encouraged to see Apple’s annual revenue growth of more than 20%, and even more excited to see the broad strength across all segments. Apple’s products are still in high demand, which is a good sign for the company’s future. If Apple can continue to increase its global share of devices, the company’s service business should quickly gain ground.
Image Source: Apple.
One last word
Apple is already a massive global company, and to have a substantial impact on its growth trajectory, Apple’s services business will need to be correspondingly massive. That may be a difficult task to accomplish, especially as Apple faces several strong competitors.
Android-powered smartphones, for example, have a much larger global market share than Apple’s iPhone AlphabetGoogle Play Store has a serious advantage over Apple’s App Store. In addition, it can be difficult for Apple TV + to get to grips with the increasingly competitive streaming market, especially given the level of success that Netflix and Disney have already reached there.
Investors should also note that since 2014, Apple has been working on a self-driving electric car as part of Project TitanRumors recently circulated about the company’s pending partnership on an Apple-branded car Hyundai didn’t produce anything but hours after that announcement, Nissan showed interest in collaborating with the technology company. While the details are still vague, investors should pay attention to the situation.
Apple got to where it is today through incredible innovation. From the first iPod to the latest iPhone, the company has successfully captivated consumers for years. And I would never bet against Apple’s ability to create a new market opportunity (i.e. an Apple car). Additionally, the company has strong leadership in CEO Tim Cook, incredibly deep pockets, and one of the most valuable brand names in the world. From that perspective, Apple still looks like a solid long-term investment.