Apple Logo

Catch me up: Apple, a trillion-dollar company

August 2018 – Apple became the first public company to be valued at $1 Trillion

That’s unique: Sum of all publicly-traded US companies hit $30 trillion total that same year.

What does a trillion-dollar valuation really mean?

Reminder: Company valuations are basically the Measurable Value they’re delivering, multiplied by an arbitrary Confidence Factor decided by the market. 

So let’s break down Apple’s:

Measurable Value:

  • $60 Billion Net Income (Profit)
  • Business Segments:
    1. iPhone
      1. Core product
      2. 60% of total sales
      3. Ranked among the top-five smartphone vendors in the world since 2009
    2. Services
      1. Revenue of $37 billion, 13% of total
      2. High profit driver: Gross margins (revenue minus cost) of 63%, almost 2x the iPhone
      3. Many new launches over the couple years: Apple TV, Music, Apple Card, iCloud
    3. Mac
      1. 9% of revenue, growing at 9%
      2. Sales of $25 billion in 2018
    4. Wearables/Home/Accessories
      1. 9% of sales, $17 billion
    5. iPad
      1. Sales of $19 billion in 2018, 8% of total
      2. Growing at 17%
      3. In 2016, iPad was roughly 25% of global tablet sales

Confidence Factor:

  1. Consistent, Broad Growth
    1. Services revenue up 5x since 2010
    2. Mac revenue still growing despite broader PC slowdown
    3. Wearables revenue up 33%
    4. Several new products launched this year – AirPods 2, Apple Card, News/TV/Game Services
  2. Market Dominance of Product Ecosystem
    1. Not subject to competitive pricing. Just check the iPhone price.
    2. Built-in ecosystem forces consumer loyalty
    3. iPhone loyalty strong
  3. Major Risks:
    1. Fading iPhone growth – iPhone sales declined 15% in early 2019
    2. A slowdown in China
    3. Longer iPhone replacement cycle
    4. Heightened global smartphone competition
    5. Antitrust lawsuits in focus for Big Tech
    6. Trade War escalation
    7. Impending recession

How does this all translate into a stock?

A stock is just a slice of the big value pie: valuation divided by the number of shares

Total Valuation = (Measurable Value) x (Confidence Factor)

Apple net profits are in the $55B range, and the company’s market valuation is around $1.2 trillion. So that confidence factor is somewhere in the 22x range.

No one knows exactly what that means, because it’s all relative.

HP is around 9x, Amazon is around 70x, and Google is somewhere around 25x. 

The Measurable Value data, like revenue/expenses/profit/sales, is released quarterly in public announcements.

The Factor is what moves with the news and people’s opinions of it.

As you read, think about how the news would affect your Confidence factor for Apple. Do you think this piece of new information is going to make Apple more of less valuable in the future?

Bottom line: Do you think Apple is going to be more or less valuable 5-10 years from now? If so, grab a share. If not, let it lie.

For the history buffs:

1976 – Apple founded by Steve Jobs and Steve Wozniak

1985 – Apple launched its first Macintosh computer, and kicked Steve Jobs out.

1997 – After a tough decade of flops and interim CEO’s, Apple purchased Steve Jobs’ Next Computers for $429 million to bring him back to lead. Apple valuation around $2.5 billion.

2001 – Apple introduced the iMac and Mac Operating System, and launched the iPod. iPod was dominant and important to Apple’s revenue. By 2005, it was 76% of portable music device market, and almost doubled the revenue from $1.9B to $3.2B in one year.

2003 – Apple launched iTunes Music Store. By 2010 they would celebrate 10 billion song downloads.

2005 – Apple announced transition to Intel processing, begins period of massive growth. $30B valuation.

2007 – Apple unveils the iPhone and iOS. $150B valuation. 

2010 – iPad released to the public. $300B valuation.

2011 – Tim Cook takes over from Steve Jobs. $350B valuation.

2014 – Apple unveils the Apple Watch, buys Beats for $1B. $600B valuation

2017 – iPhone 8 released. $800B valuation.

2018 – Apple crosses $1 trillion valuation.

Sources: Investopedia, Business Insider, Apple Wikipedia

Leave a Reply