How Apple Is Killing It, Yet Again

AAA

Every decade comes a new evolution for Apple Computers that turns out to be the newest big thing on the market.  In 1997, Apple released the colorful iMac line of computers that kept the company from going belly-up (an odd concept in 2015 but a very near reality back in the days of Windows 98).  In 2002, the company launched the iPod mp3 device that changed digital music forever.  Less than five years later, the iPhone turned into the world's biggest and most popular smart phone.  Just last year, the Apple watch hit the shelves and has been burning up wishlists and birthday gifts alike.  It would seem almost pedestrian to recommend investing in Apple stock (AAPL on the NASDAQ, trading for $129.62 a share) these days, sort of like investing in AT+T or General Electric, but Apple has proven yet again why they should be included in every portfolio in increasing numbers. 

Smart Phones, Smart Investments

With the iPhone accounting for nearly two in every three dollars brought in by the computer giant, Apple clearly knows where their biggest and best cash cow lies.  There's so much to like about the iPhone from an investment standpoint: Apple makes huge margins on each phone, they enjoy the licensing rights for each app that users download, and they release a new model almost every year to fantastic acclaim.  If all that wasn't enough, every sign in the investing world indicates that Apple will remain the top dog in the smartphone market for a very, very long time -- so long that there's no challenger on the horizon or the next horizon or the horizon two states over.  Apple has an astounding 93% of profit share in the smart phone market, such a fantastic share that they might as well be printing money.  Despite the fact that Samsung manufactures more smart phones than Apple, their own profit share is less than 10% of that of Apple's.  Competitors like BlackBerry and Nokia either sit on null profit share or negative profit share, meaning that Apple's competitors are more likely to go out of business than they are to supplant the titan's standings in the tech market.  This is especially impressive given where Apple and Samsung stood just two years ago.  At the end of 2013 Q3, both companies nearly split the profit share in the global market.  Since then, it's been all Apple, all the time.  Not just that, as if that wasn't enough, but Apple has marketed and sold premium models with high profit margins time and time again, while Samsung's cheaper, budget-friendly phones have flopped like a fish out of water.  Demand for iPhones remains at an all time high, as indicated by the release of the iPhone 6 in China boosting the nation's average spending on smartphone technology by fifty dollars per person.  No other company enjoys the revenue from the quarter-trillion-dollar global smart phone market like Apple, who ironically may be subject to anti-trust laws like archrival Microsoft suffered if the pace continues.

Brand Loyalty

The first law of business states that existing customers pull their weight far more than new customers.  This truism reflects yet another strength of Apple, their stock, and their investment potential.  No company in the world, and indeed perhaps in all of history, maintains better customer satisfaction than Apple Computers.  Ten times as many Apple customers report that they will purchase another Apple product as do customers who report they will purchase a competitor's product.  Forty percent of all US tech consumers, furthermore, report that they will buy an Apple product for their next computer, smart phone, or entertainment device.  What's more, if Apple snaps up just a quarter of the "undecided" US consumers, they'll hold better than a fifty percent market share in their industry, making them larger than all the competition combined.  Those who do buy Apple products also spend on Apple apps, with about three times as much sale on the Apple App store as on the Google App store, with growth of about fifteen billion dollars per year.  This represents all-but-free money for Apple, since they merely need to distribute the apps developed by third parties and pay out royalties while keeping the majority of the revenue.

iOS 9

When Microsoft announced the release of Windows 10 in spring, their news came with little fanfare.  Compare it to Apple's announcement of iOS 9 and it's quite clear which operating system the public clamors for.  Since iOS 8 suffered in comparison to 7, with about half as many sales, the new launch comes with high hopes and great expectations.  Apple wants to offer its customers the ability to open up space by deleting apps and then rapidly re-installing apps with footprint data, making it possible to multi-task on a phone without losing the capability to hold information and use different applications.  The new iOS offers a $200 upgrade that gives users twice as much data, despite the fact that this task costs Apple less than fifty dollars per phone to implement.  With a base model of 16 gigs of storage data, the iPhone would seem on the surface to be an inferior computing device in comparison to many of its competitors, but the market cares not: customers have snapped up the more expensive phone that holds less data time and time again.  Apple's decision to flex its muscles for the release of iOS 9 represents a surprising change from their previous business models, but one that will certainly result in good sales.

Takeaways

Few companies offer their stock with less risk to investors than Apple.  With an asking price that has doubled since 2012 and survived the recession with frightening speed, Apple has shown a resilience, to say nothing of a customer base, that other companies would kill for.  Without any limitations in their view, they represent one of the very best value stocks that an investor can hold, especially at a time when the stock market writ large has barely provided any value.

Related Articles

The GE Deal: Smoke and Mirrors Comcast's Demise: Greatly Exaggerated The Aerospace Industry is Delivering Science Fiction Has Priceline's Growth Tapped Out? Sierra Wireless: The Ultimate Value Buy
Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now

×