It took Apple 42 years to become a billion dollar company, two years to double that (August 19, 2020) and just over 16 months to hit a Market capitalization of $ 3 billion. The fact that the latest leap took place without any notable hardware innovation shows how quickly it has improved its own business model.
Instead of stock prices rising due to ambitious new product releases, the valuation is based on Apple’s record gross margins of 70 percent in subscriptions and rapid sales growth in legacy products such as the iPhone.
The latest iPhone 13 model comes with fast 5G download speeds but no major design changes. Still, Apple is the beneficiary of a comprehensive upgrade cycle, regardless. Consumers who have hung on to cell phones for years, uninspired by previous models, are ready to switch. Carriers like AT&T offer discounts for upgrades. Despite a shortage of chips, iPhone sales grew 39 percent in the past quarter, making it the company’s fastest growing unit.
Demand is strong in the US and China. This year, Apple surpassed Vivo to become the best smartphone brand in China for the first time since 2015, according to Counterpoint Research.
There has been a change in the business mix in recent years. In the 2018 financial year, Apple’s “other” category of sales – which included AirPods and Apple Watches – was $ 17 billion, or 6.5 percent of total sales. In the most recent financial year, sales of what is now called the Wearables category more than doubled. It now accounts for 10.5 percent of sales.
What has not changed is Apple’s amazing cash creation. Free cash flow for the past financial year was almost $ 93 billion. But the aggressive and ongoing buyback program has reduced reserves, meaning the gap between enterprise value and market capitalization has narrowed.
Regulation threatens to topple the next trillion-dollar price jump. In the UK, the Competition and Markets Authority is proposing that Internet users lose out because of Apple and Google’s duopoly of the ecosystem. Apple has already dropped app store fees in the US. In China, it is distorting itself to avoid fighting.
A pipeline of new products should help divert attention from such concerns. This year, Apple is expected to release its first artificial reality headset. In the metaverse, a valuation of $ 4 billion may already be on the horizon.
The Lex team is interested in hearing more from readers. Please tell us what you think of the prospects for Apple in the comments section below.