The iPhone manufacturer has ascended to world dominance, becoming a household name associated with sophisticated software and slick designed gadgets. Apple’s foothold in the daily lives of people from across the globe has risen at an unprecedented rate from just less than a 1 million active iPhone users in 2007 to a whooping 1042 million active iPhone users from across the globe in 2020, compared to the current global population standing at 7.9 billion. The company first went public in 1980 but it wasn’t much of an outstanding entrance onto world view in the hey days of Silicon Valley.
By 2007, the company was worth $73.4 Billion when Steve Jobs unveiled his blooming company, since then the smartphone manufacturer has gained 5800% in value. Apple has become the first publicly traded to reach $3 trillion in market capitalisation. Several stocks splits have made the stock price readily available and within reach to the general public, and clocked $3 trillion market cap whilst trading at $182.76 on the 3rd of January 2022. That’s less than one tenth of Google’s share price of $2771.74, despite Google having a market cap of $1.845 trillion. Apple went for a stock split on several occasions in a successful manoeuvre to raise liquidity.
The market cap of Apple has broadly been driven by a plethora of investors who have turned to the stock counting it as a safe and sound equity given its stable revenue growth and ballooning demand for Apple services. In 2020, Apple witnessed an impressive 47% revenue growth, as global sales continued to climb despite the adverse effects of the pandemic on the global economy. Revenue streams that are reportedly experiencing accelerated growth include Apple services which encompass the App store, Apple music and Apple tv+. Despite this segment gaining momentum, the iconic iPhone is still commandeering 41.4% in revenue contribution whilst the iPhone 6 (6 and 6 Plus versions) generated $155 Billion sales revenue in 2015, a mark that has not yet been surpassed by any of the later versions of the iPhone.
Despite its lucrative revenue growth figures, Apple has remained attractive to investors because it has successfully beat the market’s earnings per share forecasts. Speculators have capitalised on Apple events, where new products are launched, in a bid to maximise on those momentary stock price movements generated by market euphoria during such events. On the contrary, Apple’s expanding market cap partly is blamed on the company’s strategy of stock buyback. This practise has furthered the upward momentum of shares not only of Apple but of other tech giants, including Tesla’s botched stock buyback bid in 2018.
Prior to the pandemic in August of 2018, Apple overtook several NYSE giants in the U.S. in reaching the $1 trillion market cap feat. Despite the shackles of the pandemic reigning on the global economic activity, the manufacturer’s market cap has continued to grow in tandem to its revenue growth. The product categories are performing satisfactorily in their diverse market segments. iPhone sales are contributing more revenue at 41.4% of total revenue, Mac products 22%, Wearables 14%, iPad 11%, and Apple services contributing 12.0% whilst being the fastest growing segment as well. As cloud storage services continue to gain traction in this information age, the demand for storage space is inclined towards unprecedented growth, posing a potential growth opportunity for the iCloud services. The Apple services category will likely overtake the slowing iPad segment to reach 20% in the next two financial years.
The Mac segment is expected to continue on a clear positive path, incorporating the latest innovations including the industry’s much appreciated M1 Pro and M1 Max chips for its MacBook Pro laptops. These latest M1 chips will award Apple the privilege of side-stepping Intel’s processors. This will go a long way in trimming down production costs incurred via outsourced components. Apple will also have the opportunity of exerting greater dominion over the design and performance of its adored laptops.
Reverting to the $3 trillion market phenomenon, Apple along with the other FAANG corporates have enjoyed a buoyant period despite the ongoing pandemic. In 2021, Alphabet (the parent company of Google) enjoyed a 65% revenue growth, Microsoft 50% and Apple a considerable 34% revenue growth. Google has the capacity of immediately catching up with Apple, its market cap already stands at $2 trillion and is rapidly expanding, followed by Amazon (the online retail monopoly) with market cap equivalent to $1.75 trillion. Facebook is trailing below the trillion-dollar mark, registering an impressive market cap of $940 billion despite the recent sell off in high growth tech stocks.
Set into perspective, Apple is worth more than AT&T, Coca-Cola, Disney, ExxonMobil, Goldman Sachs, Netflix, Nike and Walmart all combined together. In terms of investment strategy, it will be prudent to invest in several firms which are operating in diverse sectors of the economy rather than investing in one huge tech giant. Apple is now being regarded as the Coca-Cola of the tech industry because it has seemingly achieved a household name status in the smartphone industry, regardless of the fact that it can succumb to the same fate as BlackBerry and Nokia if Tim Cook’s Research and Development team convert to complacency.
At $3 trillion, Apple has dwarfed the Gross Domestic Product of the entire SADC region, which currently stands at $721.3 Billion. As if not enough, other world’s top economies will be left wanting, and these include UK $2.829 trillion, France $2.715 trillion, Italy $2.003 trillion, and Switzerland with all its glamour at $703 Billion is even worth less than Facebook. These numbers are jaw dropping at face value but might be an indication of the unhealth status of the stock market. The stock market especially the tech industry might be experiencing an unbridled bubble which is being fuelled by the Federal Reserve’s easy money policies. Ranging from Quantitative Easing responsible for periodically injecting $120 billion into the economy since inception of the pandemic. At 0% – 2.25%, the Fed’s easy money policy has broadly contributed to the current acceleration in asset prices coupled with its even generous contemporary across the Atlantic, the European Central Bank. The ECB has stubbornly pinned down the base rate at 0% from the period commencing prior to the novel coronavirus.
Therefore, despite a stable global market share which has hovered around 34%, closely followed by Samsung with 30% market share, Apple is a company with comprehensive fundamentals contributing to its stock value despite the current monetary policy stance of the Federal Reserve. Its global market share is however exposed to the economic health of the U.S. and Europe Union which are generating 34.87% and 22.68% respectively in sales revenue. Economic shocks in these economic powerhouses will infiltrate other regions via direct and second-hand channels thus affecting the stability of Apple’s sales revenue.
