Source: PaxForex Premium Analytics Portal, Fundamental Insight
No one doubts that Apple is an amazing company. Since going public in 1980, the company's stock has risen more than 120,000%, not counting dividends. While previous performance cannot predict the future, the famous iPhone maker seems to be well positioned for success in the coming years. Nevertheless, there is a good chance that the activities of this tech giant will change.
Not only has the company's product segment reached maturity, but the technology sector is changing rapidly. Being the great company that Apple is, it will need to continue to adapt to emerging trends and find new ways to ensure growth. With that in mind, where will the tech giant be in 2030?
We know it's a tough question, but let's dive into it and try to find the answer.
In the fiscal year 2021, Apple's annual sales were $366 billion. $297 billion, or 81%, came from the product segment, which includes iPhones, iPads, and Macs. The remaining $68 billion, or 19%, came from the services segment, which includes the App Store, advertising, cloud services, Apple TV+, Apple Music, AppleCare, and others. In the most recent quarter, the product segment fell 0.9% YoY to $63 billion, accounting for 76% of total revenue; the services segment rose 12.1% to $20 billion, accounting for 24% of sales.
Looking at the numbers, it's clear that Apple's future growth picture depends on the service category, but how profitable is each segment?
In Q3, the product segment's gross profit margin declined 152 basis points YoY to 34.5%, while the services segment's gross profit margin rose 169 basis points to 71.5%. Thus, not only is the services segment growing much faster, but it is also a much more profitable business. Clearly, Apple could be a much more profitable company by the end of the decade as the services segment continues to outpace the product category in terms of growth and profitability.
Let's estimate that the products segment could grow at a compound annual growth rate (CAGR) of 3% through the fiscal year 2030 compared to 2021 to $388 billion, while the services segment could grow at a compound annual growth rate of 18% to $304 billion. So Apple's total sales in fiscal 2030 will be $692 billion, slightly higher than analysts' forecast of $676 billion, according to S&P Global Market Intelligence. In addition, the product segment will account for just 56% of revenue, up from 76% in the last quarter, and the services category will account for 44% of sales, up significantly from 24% in Q3. No one knows exactly how things will play out, but based on recent business trends, it's safe to assume that Apple's services segment will easily outpace the product segment in terms of growth by the end of the decade.
Regardless of exact estimates, we think it's safe to say that Apple's future will be largely driven by the services segment, not the hardware products. So investors should keep a close eye on the performance of the services category. It has important implications for Apple's long-term success, and it's important that this segment continues to thrive if the tech giant wants to maintain significant growth.
With its one-of-a-kind brand and $48.2 billion in cash and marketable securities, we are confident that Apple's services segment will thrive in the long run. If you already own Apple stock, hold it forever. If you want to open a position or accumulate more stock, we would wait for now. The stock currently trades at 26 to earnings, which is above the five-year average of 23.1. We would suggest that investors wait until the price-to-earnings ratio falls below the historical average.
Apple is a huge company, but identifying good business is only one part of being a great investor. The other part is determining when to buy. In the case of the iPhone maker, now is not the time. However, be patient - the right time is always coming.
As long as the price is below 164.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 153.26
- Take Profit 1: 149.00
- Take Profit 2: 142.00
Alternative scenario:
If the level of 164.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 164.00
- Take Profit 1: 170.00
- Take Profit 2: 175.00
