Categories Analysis, Technology

Breaking down Apple’s journey to $2 trillion valuation

It’s not long since we celebrated Apple’s entry into the “Trillion Dollar Club,” and we are already talking about $2 trillion in market cap. While analysts diverge on the candidates they are betting on, we take a look at how Apple’s road to this outlandish valuation appears based on what we have seen so far.

Last week, Amit Daryanani of Evercore ISI had predicted that Apple Inc (NASDAQ: AAPL) could hit $2 trillion in market cap in the next four years. The analyst has been quite bullish on the iPhone maker ever since initiating coverage with an ‘Outperform’ rating in mid-2019.

Notably, Apple became the first US company to hit the $1 trillion mark valuation in August 2018, which was followed by peer tech giants Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL). However, Alphabet was forced below this prestigious benchmark during the COVID-driven sell-off and is currently inching back towards $1 trillion.  

So if nothing drastic happens over the next four years, let’s analyze how the Cupertino-based firm is expected to lead the way the $2 trillion mark.

Stock market run

Apple, which went public in 1980, hit $100 billion in market cap only 27 years later. Ironically, this was also the year the first iPhone was launched. Thanks to the immense popularity gained by the avant-garde gadget, it took only five more years for the valuation to hit $500 billion.

Apple market cap timeline

The next half a trillion came within a short span of six years. Currently, the stock is trading at a valuation close to $1.5 trillion, marching past market concerns surrounding the global pandemic and the US-China trade war.

Keeping in view that Apple doubled its first $500 billion market cap in just five years and tripled in another two years, hitting $2 trillion appears an easy target based on historical performance in the market.  

Also Read:  Apple (AAPL) expects Services business to face headwinds in Q3
apple iphone revenue change trend

Only if things were that simple. As we know, historical performance is only an indicator and not a pattern to be adhered to.  

Services to play a key role

Of late, we have seen Apple’s services segment offsetting some of the weakness seen on iPhone sales. The Services unit will play a key role in Apple’s journey to $2 trillion as it increases its revenue contribution to approximately $100 billion. Wearables, which has been gaining more acceptance among consumers over the past few years, is expected to continue posting double-digit growths to around $60 billion by 2024.   

Apple services projected growth trend

Let’s now break down the Services revenue trend to understand the approximation of $100 billion by 2024.

From fiscal 2015 to 2019, revenue from this business – which includes iCloud, Apple Music, App Store, Apple Arcade, etc – has grown at an average of 23%. At the end of fiscal 2019, the company had registered revenues of $46.3 billion. So if it continues to achieve the current rate of annual growth, that would take it to $106.6 billion at the end of fiscal 2024.

Also Read:  Chinese exodus from US exchanges not an unlikely scenario
Apple (AAPL) Q2 2020 earnings - Products and Services

Apple has been transforming itself into a services platform over the past few years, increasing its revenue dependence on the high-margin Services segment. While it accounted for less than 10% of total revenues in fiscal 2015, the uptrend over the years suggests Services could contribute at least a third of Apple’s overall revenues by 2024.

And as Daryanani noted, a fast-growing services segment would help expand the overall gross margins of the firm, in turn, EPS. Robust stock buybacks could further fuel the EPS growth, possibly translating to stock price inflation.

Others in the race

Other members of the elite “Trillion dollar club” are also racing to the $2 trillion mark.  

While Jefferies analyst Brent Thill believes Amazon could breach this mark by as early as 2023, Philip Winslow of Wells Fargo Securities bets on Microsoft to achieve the feat by around the same time.    

Also Read:  Data analytics has never been more critical: Alteryx CFO Kevin Rubin

__

For more insights into Apple Inc, read the latest earnings call transcript here.

Most Popular

COVID-19 drove retailers up the digital path years ahead than anticipated

Earlier we looked into how, during the COVID-19 pandemic, retailers saw changing trends in terms of their assortments and how the acceleration of online shopping led many of them to

Snowflake (SNOW) creates a record as the most successful software IPO ever; stock more than doubles

Data is at the heart of business innovation. Recognizing this trend, companies are seeking ways to transform their businesses by capturing, analyzing, and mobilizing data. The public cloud is becoming

Adobe (ADBE) sees new tailwinds as virtual shift gathers steam

The second half has been highly rewarding for design software maker Adobe Inc. (NASDAQ: ADBE) amid stable demand for digital content solutions. The company has remained unaffected by the virus-related

Top