Wall Street looked at recent Apple Inc. (NASDAQ: AAPL) earnings and was concerned. iPhone sales were modestly weak, compared with past torrid growth. There are concerns about China, the largest smartphone market in the world. Year to date, shares are higher by 40%, handily outperforming the market. And Apple stock is up just shy of 5% in the past five days, which has outperformed the market as well. Why?
Apple still has a stronghold on the high end of the smartphone market worldwide. Its forecast for the next quarter was modest. However, Apple is far from being knocked off its position on the top of the pyramid. iPhone sales for the most recent quarter totaled $43.9 billion, up slightly from the same period a year earlier. (These iconic gadgets have shaped our lives since the 1950s.)
However, the spectacular news about Apple is its rapidly growing services operations. Revenue rose to $22.3 billion, up from $19.2 billion in the quarter a year ago. This includes the App Store, Apple Pay, Apple Card and subscriptions to Apple TV+, Apple Music and iCloud. Apple’s installed base of 2 billion worldwide drives that revenue. That base is a massive platform to which it does and can sell its services.
Apple’s services businesses could eventually grow to match iPhone revenue. Cloud storage is now the norm for both people and companies. Apple TV+ may compete with Netflix. Amazon and others. However, Apple has well over $100 billion on its balance sheet. Its ability to compete in the business is based on the installed hardware base and its ability to create programming using huge budgets.
Apple is the most valuable brand in the world and has been for almost a decade. As Apple releases new products and services, this advantage cannot be underestimated. Over the past five years, Apple stock is up 256%, compared to 60% for the market. With a growing services business, that run is not over.
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