Apple’s Market Value Should Cross $1 Trillion and Keep On Trucking
It has been a long time coming, but Apple could soon be worth $1 trillion — and counting. At about $940 billion, the tech giant is close to being the first company to pass that threshold in market capitalization, as Breakingviews predicted seven years ago. Growth has slowed since then, but customers remain loyal and today’s valuation is far from stretched. Apple’s timely focus on data privacy may help it get there.
The rather mundane improvements rolling out at Apple’s Worldwide Developers Conference this week demonstrate how the smartphone market is largely mature. Shipments worldwide declined slightly for the first time last year, the research firm IDC believes, and should grow less than 3 percent annually over the next five years.
That said, there’s no obvious replacement for smartphones on the horizon. Apple earned $48 billion last year, mostly from iPhone sales, so this looks like the base camp for the company. Phones are prone to being dropped, dunked in water or lost. Throw in small improvements, and the company can reap more per device. The average iPhone sales price actually rose last year.
Apple can wring more dollars out of users in other ways, as well. Service revenue from selling apps, online storage and streaming music is rising at a 31 percent annual clip and now accounts for 15 percent of sales. Add in revenue from ancillary hardware, and analysts think the company can increase operating profit 13 percent this year. It’s not hard to imagine a healthy rate of growth continuing. Tim Cook, Apple’s chief executive, is also milking the discomfort of Facebook, Google and others whose businesses rely heavily on sharing data, sometimes controversially, by contrasting them with Apple’s privacy-friendly approach.
Yet Wall Street has remained oddly skeptical over the years. Apple is valued at 15 times estimated earnings over the next 12 months, which is slightly less than the Standard & Poor’s 500-stock index over all. And peers trade at a substantial premium, with Facebook at 22 times forward earnings and Microsoft and the Google parent Alphabet on a multiple of 25.
That’s too large a gap. Microsoft is projected to grow roughly as fast as Apple this year. Facebook and Google are growing faster, but they are in the line of fire from consumers and regulators over data gathering and privacy worries. Apple’s conference this week may be short on pizazz, but the nearly trillion-dollar company can tweak its business without the distraction of defending it.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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