By Samantha Barnes, International Banker
As the world eagerly waited to see which of the tech giants would first reach the $1-trillion-mark in market valuation, Apple finally crossed the line to beat out its rivals on August 2. It was the stock jump of 2.8 percent early that morning that enabled Apple to reach the magic figure, an increase that came on the back of some stellar financial results announced for the fiscal third quarter. The California-based electronics behemoth managed to generate a record $53.3-billion revenue for the period, a hefty 17 percent more than the same quarter of the previous year, as well as a 32-percent surge in profits to $11.5 billion.
In particular, a combination of strong iPhone sales and a huge capital-returns programme has underpinned Apple’s recent surge. As CEO Tim Cook recently acknowledged, the iPhone X remained the most popular phone of the quarter once more. Although it comes with a lofty price tag in excess of $1,000, the new model has still been the best-selling of all iPhones since it became available. In so doing, it has helped to push the average selling price for an Apple phone to $724, although this was slightly lower than the $728 recorded in the previous quarter.
What’s more, the only new product line to be released during Cook’s tenure, the Apple Watch, has reportedly experienced annual sales growth for the quarter in the “mid-40 percent range”, as stated recently by the Apple chief executive. International sales accounted for 60 percent of Apple’s revenue, moreover, underlining the company’s extensive global reach. According to Apple’s chief financial officer, Luca Maestri, “Our strong business performance drove revenue growth in each of our geographic segments. We returned almost $25 billion to investors through our capital return program during the quarter, including $20 billion in share repurchases.”
And yet it was just 21 years ago that Apple was on the verge of bankruptcy when its stock was trading for less than a dollar. Considering that the entire gross domestic product (GDP) of Indonesia in 2017 was $1.01 trillion, the fact that Apple’s valuation now exceeds the world’s 16th-largest economy puts its accomplishments into perspective. Its stock price has positively shot up over the last few years; the first three quarters of 2018 saw more than 30 percent appreciation; the 24 months to the end of the third quarter saw Apple’s stock price more than double.
Indeed, the company’s performance under Cook has been remarkable. The passing of Steve Jobs in October 2011 generated much concern over whether the replacement would be able to replicate the legacy of Apple’s visionary co-founder. But it would seem that under the stewardship of Jobs’ successor, the company has continued moving from strength to strength. Around the same time as Cook took the mantle from Jobs, Apple managed to knock Exxon Mobil off its perch as the S&P 500’s most valuable company. And since then it has maintained its top spot, or has been extremely close to doing so. The share price has also grown fourfold since Cook took the helm in 2011.
As such, the recent ascent to the trillion-dollar valuation is undoubtedly a watershed moment, if somewhat unsurprising. Although the state-owned PetroChina managed the feat back in 2007 when it was undergoing an initial public offering, the valuation calculations were based only on the newly listed shares and ignored the company’s Hong Kong-listed shares, which were trading at a considerably lower price. PetroChina’s value has also shrunk substantially since those days. Saudi Arabia’s national oil company, Saudi Aramco, meanwhile, may end up surpassing Apple’s valuation, as it continues to mull the option of an IPO. But Apple is the first non-state-owned company to achieve the feat and thus has scaled its immense heights without the aid of government backing.
At the heart of Apple’s enduring success simply lies the quality and innovation of its products, which have allowed the company to score massive periodic hits over the last 20 years. Beginning with the iMac in 1998, which was then followed by the iPod just after the turn of the century, the MacBook in 2006 and the iPhone a year later, these revolutionary products have each garnered global success in their own right—as have supporting software services such as iTunes and the App Store. And although Apple has not recently managed to release anything as significant as the iPhone, which was launched in 2007 and currently constitutes about two-thirds of Apple’s revenues, a range of complementary services have helped propel the company to stratospheric levels. Its new music-streaming service, AirPods headphones and Beats audio products are just three such examples.
Yet, despite the astronomical numbers, Apple employs “only” 123,000 people, meaning it does not even break the top 50 largest US employers (and pales in comparison with fellow tech giant Amazon’s 566,000 employees, who place it second in the country). It also does not own any of the factories that are used to assemble its iPhones.
The question that is now firmly on everyone’s lips is whether Apple can sustain its momentum and continue its charge well beyond $1 trillion, or will it soon peak and head back south again? While estimates are positive for future growth, Goldman Sachs notes that waning Chinese demand for iPhones could impact Apple’s earnings in the future. According to the bank’s analyst Rod Hall, “There are multiple signs of rapidly slowing consumer demand in China, which we believe could easily affect Apple’s demand there this fall.”
But that didn’t stop Apple from releasing three new iPhone models in September—the XS, XS Max and XR models—as well as discontinuing all previous versions. Some analysts believe the move will help to obtain demand from customers who had decided to bypass previous models. And it has also made a move into media via its Apple News service that is now read regularly by around 90 million people. As expected, Cook remains upbeat, “Looking ahead, we couldn’t be more excited about the products and services in our pipeline.”
And the company continues to receive a ringing endorsement from none other than Warren Buffett. Back in May, Buffett said, “I clearly like Apple. We buy them to hold…. We bought about 5 percent of the company. I’d love to own 100 percent of it…. We like very much the economics of their activities. We like very much the management and the way they think.” The legendary investor now holds more than $55 billion in Apple stock, which is equivalent to nearly 5 percent of Apple’s total share distribution, and considers the iPhone to be “a very sticky product”.
With the Oracle of Omaha among Apple’s biggest proponents and with Cook continuing at the helm, therefore, things remain decidedly upbeat for the future.