Apple wins the race for $1 trillion valuation

Apple has become the first publicly listed company to hit a market cap of $1 trillion, beating tech rivals Microsoft, Amazon and Alphabet to the title. With Apple shares continuing to rally, where does the iPhone maker go from here and who’s next to hit the landmark valuation? 

Apple
Source: Bloomberg

Apple is going from strength-to-strength as iPhone sales continue to impress the market and profits flood into the business. Having started out making Macs, the company has seen its valuation surge higher as it introduced new revolutionary products to the market. Between launching the first iPod in 2001 and the first iPhone in 2007 Apple’s market cap had surged from just $6 billion to $106 billion, and by the time it unveiled its latest model, the iPhone X, in September last year it had grown into a near $800 billion business.

Tim Cook has taken Apple onwards and upwards since he became interim chief executive in 2009 before taking the role on permanently shortly before the death of Steve Jobs in 2011. But despite all of his success – including the introduction of the iPad, ever-better iPhones that have kept us all interested and releasing new products like the Apple Watch – Cook has found himself cast in the shadow of Apple’s beloved founder since taking over. But Apple’s success story has never accelerated as fast as it has under Cook’s management.

Apple shares rally to hit market value of $1 trillion

Apple had already claimed the title as the world’s most valuable listed business last year and has comfortably stayed ahead of its rivals in the race for the $1 trillion valuation. Although shares were already heading higher, the real catalyst that pushed Apple shares to new highs was its most recent update on the last day of July that delivered better-than-expected results for the third quarter (Q3) of its financial year.

Shares were propelled higher by as much 9.3% in the days after the results, giving Apple a market value of $1 trillion on 2 August at a price of $207.50, ending the day at a record closing share price of $207.39.

Apple’s journey to a $1 trillion valuation

  • 1980: Apple, initially concentrated on Mac computers, went public at a price of just $22 per share
  • 2001: Apple launches the first iPod, boasting a market cap of just $5.8 billion
  • 2007: the company’s valuation has grown to $106 billion as it unveils the first model of its most successful product, the iPhone
  • 2009: Tim Cook takes over as interim CEO, worth $76 billion at the time
  • 2010: Apple launches its first tablet, the iPad, to further boost its $237.6 billion valuation
  • 2011: Tim Cook formally takes over as CEO of the $356.8 billion company, shortly before founder Steve Jobs dies (just one day after the firm released the iPhone 4S and introduced voice-assistant Siri to its products)
  • 2014: the firm’s worth rises to $591 billion as it releases the iPhone 6 and then reveals it delivered the most profitable set of quarterly results by any public company ever
  • 2017: having reached a valuation of $796 billion, Apple becomes the most valuable listed company ever, and launches its latest and most expensive smartphone model yet, the iPhone X
  • 2018: Apple becomes the first publicly-listed business to reach a market cap of $1 trillion at a price of $207.50

Apple shares: tech analysis

Apple is the bull that you don’t want to get in front of, with the share price seemingly only ever moving in one direction over the years. The long-term picture is certainly a convincing one, with this month marking the fourth consecutive monthly record high for the company’s share price. The daily chart highlights the runaway success in the wake of the recent earnings report, with shares seeing three consecutive days of upside in the wake of Tuesday’s numbers. The difficulty here is that at some point we will retrace, and it makes sense to look for either a continuation pattern or retracement to base a trade around.  The key support level that must hold is $180.74, with any downside looking like an opportunity to look for longs in Apple.

Apple beats rivals Microsoft, Amazon and Google to landmark valuation

The iPhone maker had been leading the race for the $1 trillion race for some time and as Apple celebrated its new milestone its competitors were still some way behind. At the close of 2 August, Amazon was valued at $894.7 billion, followed by Alphabet at $863.4 billion and Microsoft at $825.8 billion.

Apple maintains momentum through higher priced iPhone X 

Despite concerns over its hefty price tag, as well as controversial decisions such as the one to remove the headphone jack, Apple has continued to demonstrate that its latest model, the iPhone X, is hitting the spot. While the business has evolved from computers to music players and then onto smartphones over the decades, Cook’s time at the company has not been focused on discovering Apple’s next ground-breaking product but on building out its ecosystem and increasing value.

For a company that was willing to kill its own business before someone else did, essentially eradicating its core iPod product when it introduced the iPhone to revolutionise mobile phones, some have questioned the lack of new major products that have been developed under Cook, who has paid more attention to supporting products like the Apple Watch, AirPod earphones and its apps and content like Apple Music.

Apple results beat expectations to propel shares higher

‘Our third quarter results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline,’ – Tim Cook.

But the company has confidently shrugged off any doubt about the longevity of the iPhone or the potential of its latest model. It’s most recent results showed overall iPhone sales (driven by the X) were up by only 1% year-on-year (YoY) in the three months to the end of June, hitting 41.3 million units, but revenue rose by 20% to $29.91 billion. This is a testimony to Apple’s more expensive model, which has been pushing revenue higher since being launched, despite volume growth being fairly subdued as Cook and his team squeeze more value out of its phones.

While iPhones remain the main driver of revenue (accounting for about 56% of total revenue), Apple’s other revenue streams have built up over the years. Tablets, computers and other hardware like AirPods, Apple TV, Apple Watch and its HomePod smart speaker generated $13.8 billion in revenue in the most recent quarter, accounting for about 26% of all turnover. It is a similar story with the digital side of the business, with digital content and services generating $9.55 billion of quarterly sales to make up the remaining 18% of revenue – an all-time high for the segment.

Read more about our guide to smart speakers and virtual assistants

Overall, revenue in Q3 was up 17% from the year before at $53.27 billion, the fourth consecutive quarter of double digit revenue growth, helping deliver an equal 17% rise in pre-tax profit to $13.28 billion.

($, billions) Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Revenue 45.41 52.58 88.29 61.14 53.27
From iPhones: 24.85 28.85 61.58 38.03 29.91
From iPads: 5.00 4.83 5.86 4.11 4.74
From Macs: 5.59 7.17 6.9 5.85 5.33
From other products: 2.74 3.23 5.49 3.96 3.74
From digital services: 7.27 8.50 8.47 9.20 9.55
Operating profit 10.77 13.12 26.27 15.89 12.6
Pre-tax profit 11.31 13.92 27.03 16.17 13.28
Cash dividend 0.63 0.63 0.63 0.63 0.73

 

Samsung and Apple come under pressure from cheaper Chinese rivals

The resilience in iPhone sales is even more significant considering that its biggest rival Samsung, which has become the world’s biggest smartphone maker (using Google’s open Android operating system that rivals Apple’s iOS), posted the first decline in profits in almost two years as sales of its flagship Galaxy S9 wane amid rising competition from Chinese rivals like Huawei and Xiaomi.

Read more about Chinese smartphone maker’s Xiaomi shaky start after listing

But recent reports have also suggested that Apple is succumbing to the rapid growth of Chinese rivals, which are aiming to release more high-tech products at a cheaper price to woo customers away from the big two. Samsung has long held the top spot in the global smartphone market with Apple firmly in second, but a report by the Guardian earlier this week claimed Huawei has become the first to break-up the two dominant players after stealing second place from Apple.

Read more about Apple vs Samsung in the battle for smartphone supremacy

The analysis, using aggregated data, said it was the first time in seven years that another firm had taken a place in the top two – claiming Samsung unit sales dropped 10% year-on-year in Q2 of 2018 compared to Apple volumes rising 1% and Huawei unit sales soaring 41%. The Guardian claims Samsung now has about a 20% market share with Huawei on 15%, overtaking Apple’s share of 12%.

Apple raises dividend and launches largest share buyback ever

One thing that has skewed Apple’s journey to becoming a $1 trillion company is its substantial share buybacks. Releasing its Q2 results at the start of May this year, Apple announced it would be returning $100 billion of its net cash to shareholders going forward and raised its quarterly dividend by 16%. Apple bought back $20 billion worth of shares in the three months to the end of June alone, ending the previous buyback programme.

Apple has already returned just shy of $300 billion to investors since the start of the 2012 financial year, the first year that Cook was in charge on a permanent basis, after spraying shareholders with nearly $220 billion of share buybacks and almost another $71 billion through dividend pay-outs. This has helped keep major investors such as Warren Buffet onside.  

Q2 tends to be the worst of the year for Apple, followed by a better Q3 that usually sees the firm announce its dividend and share repurchase plans. The main reason that the buyback announced this year is far bigger than those conducted previously is because of the US tax reform introduced by US President Donald Trump, cutting corporation tax and encouraging the likes of Apple to repatriate its overseas profits and return them to shareholders.

Read more about Trump vs the world in the battle for global trade

Where next for Apple and its $1 trillion valuation?

Apple seems unstoppable as people continue to join the company’s ecosystem and it finds new ways to squeeze out even more value from its customers. The valuation vindicates the company’s strategy under Cook’s leadership but as the CEO himself would say, the business is not based on just its share price.

Apple seems as untouchable now as the former giants of the mobile phone world were. The introduction of the iPhone obliterated leaders like Nokia and Blackberry but as Apple did to them, another rival could do to Apple – particularly with the rise of Chinese rivals.

While building out its supporting products and developing its high-margin digital content is yielding results for the business, it ultimately relies on thinking up developments of the iPhone that was first introduced back in 2007 and some are worried that Apple has little in the pipeline that could properly replace iPhones, should demand for its smartphone start to wane. Apple is reportedly working on secretive projects involving everything from autonomous cars and augmented reality glasses to a new video streaming service that will keep the likes of Netflix and Amazon up at night, but the future of Apple beyond the iPhone (if there is one) is unknown.

Amazon, Google and Microsoft: who will hit $1 trillion next?

While Apple has won the race to cement itself as the world’s most valuable listed company in the world, some analysts believe it has room to go much higher considering shares are still trading at about 18 times earnings compared to the likes of Amazon which trade at about 166 times.

Amazon remains in line to become the second public company to reach the $1 trillion valuation, having recently demonstrated the momentum of the business following its recent record-breaking Prime Day sale event.

Read more about Amazon propelling the flywheel with latest Prime Day sale

However, Microsoft is a contender. The company has reached an all-time high following the release of its most recent quarterly results, which beat expectations, while Alphabet’s Google has also found higher ground of late after reporting stellar results and following rumours it could re-enter China (after exiting the country in 2010).

Read more about Amazon vs Google in the battle of the tech giants

Apple has become the first $1 trillion company, but it will not be the last...

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