Beyond $3 Trillion: Why Am I Bullish On Apple, Always

The one-trillion dollar market cap was a rarity, or was so assumed as one looks back in the rear view mirror of the stock market. The two-trillion dollar market cap, for some, was Apple’s inflated value even with a lack of innovation, a temporary elevation in the numbers game, and for some, the endgame of the company’s rise.

Today, the company is in the neighbourhood of a three-trillion dollar market cap, and the underlying thought is that it cannot rise anymore, and from here, nothing but a fall is ensured. Not quite true.

Earlier this month, the stock came close to being traded at around $182. At $182.86, it would have hit the three-trillion mark. At a three-trillion dollar market cap, the first in history, the obvious question is what next, for there is a limit to how much a company can grow, especially when their last big innovation, one that has an audience globally, was more than a decade ago.

Yes, the company has made massive strides in innovation with the Apple Watch, AirPods, and even the infamous potential replacements to laptops, the iPads, but for most observers and stakeholders, the benchmark was the introduction of the iPhone, combining the utility of a mobile phone with that of an iPod.

Simply put, it changed the way we look at smartphones, for good, and forever. But as President Bartlet would ask, ‘what’s next’.

Being bullish on Apple always, it would not be an exaggeration to say that in the next five years, the market cap of the company would touch $5 trillion.

At $3 trillion, the perception is that the company has maxed out its sales capacities, but viewed from another perspective, it has barely begun.

Apples and oranges, but a comparison with Amazon, from its earlier days, is warranted. Amazon, unlike Apple, was registering staggering losses, and yet, it continued to diversify, investing in businesses that would return profits in the future years.

Eventually, those investments became cash cows, and today, Amazon’s Web Services, one of such investments, gives more revenue than Amazon’s e-commerce business.

Apple has done something similar but on a grander and more interlinked scale.

No other company in the world today builds products that become strong potential enablers for the sale of other products made by the same company. Not Microsoft, not Google, not Amazon, and not even Netflix have a range of products that complement each other in utility, interface, and operating systems.

Apple has nailed the art of creating an ecosystem, building an entire universe of hardware products and other services around the iPhone.

For instance, an iPhone, for most fans, warrants the purchase of AirPods, costing anywhere between 10 to 15 per cent of the most expensive iPhone variant. Then follows the Apple Watch, the best wearable piece of technology in the world right now, with all its competitors trailing by light years.

For anyone looking to purchase the Apple Watch, an iPhone is necessary, or for someone in the family to own it. For people working from home, the interoperability of an iPad, iPhone, and Apple laptops and desktops is also an incentive.

Then there are the smaller accessories, like the HomePod, and now, the adapters even.

The numbers validate this aspect as well. Of its $365 billion revenue in 2021, as much as 52 per cent of it came from the sales of iPhone.

For the year 2020, a little over 51 per cent of the revenue for Apple came from the sales of iPhone. However, for the same period, iPads made up 18 per cent of the revenue, wearables and home accessories made up for 5.4 per cent, almost 14 per cent came from the sales of Mac devices, and more than 11 per cent from Apple services alone.

Apple’s services include the music service iTunes, Apple Cloud, News, movie and music renting services and podcasts, Arcade, Fitness, and most recently, the streaming service. Apple TV.

Apple’s iPhone has been a gigantic enabler for Apple services, and with more than a billion iPhones currently active across the world, the potential for growth in revenue from services is huge.

In 2019, Apple sold 185 million units of the iPhone, and in 2020, as many as 195 million. Apple’s iPad, another enabler for its services and accessories remains the number one product in the tablet market, even with its faults.

The AirPods explain the Apple phenomenon of recent years. Apple was one of the first companies to discontinue the inclusion of an earphone with their iPhones. The conventional earphone is sold separately, even today, but what changed the game for Apple’s accessories was AirPods. From merely 15 million units sold in 2017, Apple sold close to 115 million units in 2020, and could sell more than 150 million units in 2021.

Revenue for Apple, from AirPods alone, is more than the revenue of Adobe, Nvidia, AMD, and even Spotify. Going forward, Apple could garner greater revenue from AirPods than Netflix does from its streaming service.

The bottom line is that iPhone users and other Apple users are embracing Apple services. In its numerous services, even though they are not available in all geographic regions. Like Apple News and Apple Fitness are not available in India, it has created cash cows that will only complement the revenues from iPhones, iPads, and other Mac devices.

Today, the services contribute anywhere between 12-18 per cent of the total Apple revenue. Ten years down the line, it could well be in the neighbourhood of 30 per cent.

Tim Cook’s handling of China, in the face of a trade war between Beijing and Washington, concerns around user privacy and security, supply chain troubles, and competition from the likes of OnePlus, Xiaomi, Vivo, and Oppo in the domestic market, warrants the bullish behaviour, for the CEO has ensured that Apple does not lose access to its biggest market.

In 2016, as it was reported recently, Apple’s Tim Cook signed a five-year agreement with the Chinese government promising investments, business deals, retail stores, manufacturing plants, and other skill development programmes in the country worth $275 billion.

For Apple, the motivation was to get rid of the disruptions that came from the CCP, especially with respect to the regulatory framework.

However, Apple’s stay in China has not been without its share of problems. Post-2016, Apple made some changes within the Apple Maps for some islands in the East China Sea, and during the Hong Kong protests, even took down an app that helped protesters.

During the Trump years, the company witnessed a slowdown in the sales of the iPhone and other products, but the last two years have been that of resurgence, and while the relationship with China is complicated, the mere existence of it assures Apple of a business worth more than $60 billion annually.

Apple’s focus on the metaverse is also another reason to be bullish. Already, Apple has created an ecosystem of hardware and software services with great degree of interoperability.

Now, Apple is working on a product that would render its iPhone futile by the next decade and replace it with augmented reality/virtual reality (AR/VR) powered smart glasses.

The earliest possible launch date is speculated for September 2022. As per some Apple observers, the combination of Apple Watch, AR/VR Glasses, and an array of services is what would enable Apple’s debut in the metaverse.

When Mark Zuckerberg first spoke about metaverse, he stressed the importance of interoperability between the metaverses of different companies, citing Google, Apple, and several other small players without naming them.

However, a level below, for each of these companies, the interlinking of hardware and software will be equally important. For instance, Apple’s Arcade, its gaming service, already enables a metaverse platform. Same is the case with Apple News.

Very far-fetched, yes, but as Netflix struggles to keep up against the streaming giants and its growing debt in the coming years, it might be picked up by Apple to be rebranded as Apple TV+.

Apple, for long, has been the trendsetter in the industry, and while questions can be raised about what it has done to take forward Steve Job’s legacy, there are enough numbers, and use-cases to define the ecosystem the company has successfully built.

What many stakeholders and observers miss is that when a user upgrades from an iPhone 8 or an iPhone XR to an iPhone 13 Pro Max, they are not looking for a different phone, but for the existing experience to be made better, from both hardware and software perspective, and this is where Apple has excelled.

One is not paying for innovation in user experience each year, or every two-three years, but the evolution in it.

Apple will hit the $5 trillion market cap in the next few years, and the enabler for it would be its work with the metaverse. It has a thriving foundation of products, embraced by users across the globe, and now all it needs to do is what it has done for the last decade or so — create products for the future.