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Between December 1982 and February 1997, Apple (NASDAQ: AAPL) generated 0% returns for investors. In the last 25 years, Apple stock has returned a staggering 108,000% and is now the largest publicly listed company in the world.
The launch of revolutionary products such as the iPod, iPhone, and iPad initially drove top-line growth for the company. But the iPhone was a game-changer for the tech giant. As smartphone adoption rose globally, the iPhone’s share rose from less than 4% in 2007 to 23.4% in Q4 of 2021. As seen in the below graph, the iPhone still accounts for a majority of Apple’s revenue.
Apple is a cash cow, and it enjoys significant pricing power due to its brand value. The iPhone, in fact, accounts for a massive 80% of total smartphone profits in the world.
In recent years, Apple launched new products such as the Apple Watch and AirPods, both of which generate billions of dollars in annual sales.
Armed with an installed base of more than two billion, Apple has managed to successfully monetize this user base and widen its ecosystem further with its Services business.
Why is Apple Services the most important revenue driver?
Apple Services includes various digital services and subscription-based offerings provided by Apple. These services include the App Store, Apple Music, iCloud, Apple Pay, and others.
One of the most popular Apple Services is the App Store, which is a digital platform for downloading and purchasing mobile applications. The App Store offers a wide variety of applications, including games, productivity tools, and lifestyle apps.
Another popular service is Apple Music, which is a subscription-based music streaming service. With Apple Music, users can access over 50 million songs, as well as personalized playlists and radio stations. Apple Music also integrates seamlessly with other Apple devices, making it easy for users to listen to their music on any device.
iCloud is a cloud storage and computing service that allows users to store their photos, documents, and other data in the cloud and access it from any device. iCloud offers various productivity tools, such as iCloud Drive and iCloud Photo Library, which make it easy for users to access and share their files across devices.
Apple Pay is a mobile payment and digital wallet service that allows users to make purchases in-store, online, and in-app using their iPhone, iPad, or Apple Watch.
In addition to these services, Apple offers various subscription-based services, such as Apple Arcade, Apple News+, and Apple Fitness+. Apple Arcade is a gaming subscription service that offers access to over 100 exclusive games, while Apple News+ offers access to over 300 magazines and newspapers. Apple Fitness+ is a fitness subscription service that offers workouts led by professional trainers and integrates with the Apple Watch to track user progress.
What next for AAPL stock price and investors?
Overall, Apple Services are an integral part of the Apple ecosystem, offering users a wide range of digital services and subscription-based offerings. These services provide users with convenient access to content and tools and help to make the experience of using Apple devices even better.
In fiscal 2022 (ended in September) the Services business increased sales by 14% year over year to $78.1 billion. It is the second largest business for the company, and annual Apple Services sales are higher than Tesla, Citigroup, and Intel.
What will be the next billion-dollar product or service for Apple? Well, it's expected to launch the Apple Car (an electric vehicle) in 2026.
AAPL stock has delivered returns of 760% to investors in the last decade after adjusting for dividends. But a challenging macro-environment has meant AAPL stock price is down 23% from all-time highs right now. Investors are worried about inflation, higher bond yields, and supply chain disruptions which might impact Apple’s revenue and profit margins in the all-important holiday season.
Priced at 22.6x times forward earnings, Apple stock is trading at a discount of more than 25% compared to consensus price target estimates.
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